I am currently acting for many landlords who are seeking to deal with tenants who are defaulting on their obligations.
What I have found surprising is the number of tenancies that commercial landlords enter into without having a properly drawn up lease. While I fully understand the wish to save money in these tough times, renting out commercial property without a properly drafted lease will end up costing the landlord more in the long run. I have set out below five reasons why you should always have a written lease when renting out commercial property.
1. It’s the law
A tenancy for a period of three years or over has to be made by deed, so if you have verbally agreed a five year term, the tenant could potentially walk liability free at any time if you have not entered into a formal lease made by deed.
2. Protection
If you want to ensure you are able to get the property back from the tenant at the end of the lease term it is essential you have a written lease. If the lease is a periodic lease, that is, it runs from month to month or year to year, or is for a fixed term of over 12 months, it will be protected by the provisions of the Landlord and Tenant Act 1954.
This protection restricts the rights of the landlord to get the property back at the end of the lease term, and also allows the tenant to apply for a new lease which the landlord can only object to on specific grounds. The landlord and tenant can agree that this protection does not apply, but they must follow a procedure which requires there to be a lease in writing.
3. Insurance, Repairs and decoration
In most commercial leases the obligation to insure, repair and redecorate is placed upon the tenant. The extent of the obligation is up for negotiation, but at the very least a tenant should be made liable to pay for the buildings insurance on the property, keep the property in at least as good a state as it was at the start of the lease, making good any damage including that through wear and tear, and to decorate the property before handing it back. This will make it much easier for you when seeking to re-let the property, and if the tenant has failed to comply with its repairing and redecorating obligations at the end of the lease term, you can claim against the tenant for the loss suffered, which is usually the cost of carrying out the repairs and decoration.
If there is no written lease the tenant has no obligation to contribute towards insurance or do anything to the premises, other than to avoid deliberate damage. In this situation you will be out of pocket for the insurance premium and may find yourself with a steep clean up and decorating bill before you can re-let.
4. Use
The only way you can restrict what the tenant does in your property is to have limitations in your written lease regarding what the tenant can an cannot do on the property. This can prevent the tenant doing something on the property which may be a nuisance to you or your other tenants, and could depress rental values on your other properties or stigmatise the property they are occupying.
5. Termination
A properly drafted commercial lease will have a provision that the landlord can get his property back if the rent is a specified number of days late, usually somewhere between 7 and 28 days. It also should state that where there has been any other breach of the lease terms, or the tenant has become insolvent, the landlord has a right to terminate the lease. This powerful remedy is known as the forfeiture clause, and only exists if it has been properly agreed, and it will be difficult to argue it has been agreed unless it is contained within a written lease.
If there is no forfeiture provision, the landlord would have to go to court and argue that there has been a fundamental breach of contract entitling the landlord to break the tenancy, but this is by no means certain to succeed. An express forfeiture provision is essential to the proper management of commercial property.
The above are clear illustrations of the need to have a properly drafted commercial lease. The cost of getting the lease properly drafted will be saved many times over if there is a dispute with the tenant, and in relation to costs, the lease usually provides that the tenant should be responsible for the landlord’s management costs associated with the property itself.
Mason
Thank you for your query.
Although a written lease may not have been entered in to between you and your tenant, a lease can still exist and in theses circumstances you may be legally required to follow specific procedures in order to properly end the tenancy.
I would certainly recommend taking legal advice before taking any action to remove your tenant.
Please contact me on 01772 258321 and I would be happy to assist you further.
Kind regards
Katie
Hi
Please could I have some advice
We have been running a business from a commercial premises for the last 3 years, we started off paying the rent every month but fell into arrears after about 18 months, the landlord agreed to write the arrears off, however we decided that we would pay extra on the rent each month to try and clear the arrears. We have been paying the rent every month but have not always been able to pay the extra to clear off the debt. (Bearing in mind the landlord had already scrapped the arrears) The landlord has now threatened to change the locks in 48 hours because of rent arrears (not quite sure why but he says he has every right to do so) We do not have a commercial lease only an assured shorthold tenancy with no expiry date. As far as I can see the landlord has to give us 6 months notice due to the landlord and tenant act 1954 so therefore can not change the locks or evict us but I would really appreciate it if someone could clarify this for me.
Many thanks
Kimberley
Hi,
In May last year we allowed a charity to use part of our property for their operations. They verbally agreed to look for other premises to move to as soon as possible.
In September last year we asked them to start paying monthly rent until they found a new premises which they agreed to but there was no written lease put in place or signed. At the start of July this year we decided we want to sell our property and gave the charity three months notice to vacate our property (which we thought was fair).
They have now just written to us to say that we should have given them six months notice and they would not be complying with our notice period. Is this correct in our situation and can they do this? They do not have exclusive use of the premises and they do not use the residential part of the property.
Thanks in advance.
Hello,
We have run our family business for over forty years. It is a small business, and one of our shops has been split in two for the last twenty years. One of the splits has been another retail unit for that length of time, and the tenant has always paid the same rent of £30 per week.
We are now wanting to open up our premises to increase our floor space, and shop front, to expand our business.
The tenant has never had a lease in place, so would a normal letter giving him six months notice to vacate the property be OK?
I look forward to your response.
Kind Regards
Mason
Tony
Thank you for your query.
You must primarily consider whether there is a lease at all and if so, whether that lease is protected by the Landlord and Tenant Act 1954. Assuming these requirements are satisfied, a s 25 notice must be in the prescribed form and served in accordance with the requirements of the Act (not less than 6 months and not more than 12 months before the end of the tenancy). You must also specify whether or not you are opposed to the grant of a new lease. From you query, I assume you are not opposed to a new lease, in which case you will be required to include your proposals for a new lease. The tenant is not bound to accept your proposed terms and they are merely suggestions as a basis for negotiations. In the event of disagreement, ultimately the court would settle the terms of any new tenancy.
Please get in touch if you have any further queries.
Kind regards
Katie
Hi
Please could you advise.
My wife is in occupation of a retail unit in a shopping centre.
It suffered a structural collapse which closed the whole centre for six months under a dangerous structure notice from building control.
This has more or less crippled this fledgling business.
We have giving six months notice on our break clause
as per our copy of the lease.
My question is what if there is no signed copy or original of the lease with my wife as the tenant signature on it.
Does the lease and its covenants apply as all she remembers signing with a witness was the agreement to lease ?
Hi – Great blog – just need to be clear here.
I have a tenant for the last 32 years, there has never been any written tenancy or agreement.
I wish to serve my tenant with a proper written tenancy agreement so things are in order i.e. he pays the proper rent, carries out decoration and repairs, keeps the shop in order, ETC as his rates are still the same from 1980 and the place is a bomb site.
All I need to know is can I serve him a section 25 notice to put this in place or is there anything else to consider first?
Thanks
Hi Brian,
On the basis of the information provided, it appears that you are not bound to accept the 30% rent increase, as the landlord cannot unilaterally vary the lease to increase the rent.
As the periodic tenant of a business lease, you have a statutory right to renewal. Since you do not agree to the 30% rent increase, you may wish to serve a notice under s 26 of the Landlord and Tenant Act 1954 (LTA 1954). If the landlord and tenant cannot agree the terms of the new lease, it may be necessary to apply to court for a new lease.
In this scenario, unless the landlord proves one of the grounds of opposition set out in s 30(1) of LTA 1954, new negotiations of the lease terms will begin. If the parties cannot agree, court will be governed by s 34 LTA 1954 in its approach to determining the rent. Depending on the terms of the tenancy, the rent will be typically set at the rate at which the property would be let on the open market by a willing lessor.
The landlord may give you notice to quit, but this has to comply with s 25 LTA 1954 and specify one of the grounds of opposition to a lease renewal set out in s 30(1) of LTA 1954. As the tenant, you will be able to challenge the landlord’s grounds for opposition within a certain time. If you succeed the court will order a new tenancy, which will begin the negotiation process above, resulting in an open market rent.
I hope this helps,
Maria
Really useful blog – thanks ! Wanted to check on something however. We have a periodic tenancy with no written agreement or lease and have been there for almost 25 years. The landlord increased the rent by 100% 3 years ago and promised to undertake repairs. No repairs have been made and now he has written to me telling me that the rent will increase by 30% with immediate effect. Am I bound to accept this as I have no written agreement and if I dont can he give me notice to quit ? I am unclear as to what would happen if he served notice and I then applied for a new tenancy – would this be under new conditions so sort of defeating the point of just giving him the rent increase from the off ? Thanks
Hi
My wife rents a shop from a so called friend for the last 18 months, no written contract or lease!! he gave her a self hand written letter today 08/05/2013
Saying I give you 3 days notice that your rent of £80 will increase to £200 a week starting from 11/05/2013.
We also had a letter from inland revenue looks like he has never declared the money we have paid to him…………….
What do you think are actions should be ? Thank you for your time……..