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.
Hi there, my partner looks after her mums property which has been occupied for over 15 years by the same business (commercial ). We are about to do some restoration work to the shop and have had a bit of a run in with the tennant. So as we look into it he has never had a rent increase in the whole 15 years and currently payees under half of the monthly value of rent, there is also no lease! Where does she (landlord) stand when it comes to raising the rent considerably? And if he does not comply how can she go about evicting the Tennant, he never has missed a rent payment and looks after the property ok. I can not see it being an easy task. Regard Dave
Hi
We are looking to purchase a property with a existing business attached. The problem with it is that the existing business do not have a written lease in place and monthly rental is very minimal. Apparently the tenant is being very awkward with the whole process and not allowing any persons in the business premises to view and measure the premises. She has been there for 25 years and looking to pass the business over to her daughter. I know that the tenant would be protected by law and we would not be able to terminate the business. What rights have us as the new landlords have in order to produce a written lease agreement with the tenant and to agree a fair and reasonable monthly rental.
Your comments is very much appreciated.
Regards
Lai Wan
Hi
I have rented a part of a school building (workshops) since September 2010. In 2010 the school was an independent school and now it is an Academy. I have always paid the rent and even now, I am paid up until June 2013. I have never been offered a written lease but we did at one time correspond on the details and have meetings although nothing was formally signed. The school wanted a yearly tenancy agreement but I explained that I contract to the local education department to run a training provsion. The training courses are for two years at a time, starting every September so I needed two years tenancy at the start of every programme that I tendered for – the reason being that I couldn’t tender fr a two year contract with only a one year lease. Tendering is in January for a September start. I said I wasn’t against yearly renewals of the lease but each renewal had to be for two years. They agreed to this. The school is split into two seperate sites. I was told verbally in November last year that there was a possibility that both schools were earmarked for rebuilding. Today I was told that they are closing the other school (not the one that I am based at) and all students are being moved into the school I rent from whilst the other school is demolished and rebuilt. When that is done, the reverse will happen. My problem is that today I was told that they want the workshops back that I rent and they want them this summer! I have started a contract to deliver training for 2 years from September 2012 so I am now in an awkward position. I have also tendered and been accepted for another two year contract starting this September. Without any signed lease agreements, do I have any rights?
Hi John
It is likely that you have occupied the premises under an implied periodic tenancy, in which case you would have benefited from the security of tenure provisions in the Landlord & Tenant Act 1954. If this is the case, the landlord would have to give you at least 6 months’ notice in the prescribed form to end the tenancy and they would in any event only be able to terminate it on one of a number of specific grounds. While one of these grounds is that a landlord intends to redevelop the premises, they would have to pay you statutory compensation. However, as there are two months’ rent arrears, you will be in breach of the tenancy and the landlord may be entitled to re-take possession of the premises with immediate effect and without payment of compensation. In the circumstances, I would advise you to pay the arrears in full to the landlord at the earliest opportunity. Providing that they accept this payment, then it is unlikely that they would be entitled to re-take possession of the premises. However, if they attempt to do this in spite of having accepted payment of the arrears, you should take legal advice on the steps to be taken to prevent them from doing this. Please feel free to contact me on 01772 208503 should this become necessary.
Kind regards
James
Hello,
I am asking this question as I have read through the blog but am still not quite clear on an issue. I have been running a car wash business for the last 9 years at a location that I have exclusive use of for the business. I never had a written lease but have been paying rent for the last 9 years. The property has changed hands a few times during those 9 years and the latest proprieter wishes to redevelop the property. The landlord has been asking me to leave, orally, for about six months and today sent me a letter saying that if I didn’t leave by the 18th of Feburary he would send in Bailiffs to repossess the property. The landlord has never sent me any notices and has always told me that I don’t have a tenancy and he can move me out when he wants. He said in the letter that I have agreed to move out in exchange for a rent free period but I never agreed and have been paying rent as usual except for the last 2 months where I am in arrears. Could you let me know if the landlord can repossess the property like this or is there anything I can do to resist this?
Thank you
John
Hi Paul
It may well be that the current occupier of the property has rights to remain in the premises under the Landlord and Tenancy Act 1954 (the Act). The landlord can bring matters to a head by serving a notice under section 25 of the Act to terminate those rights, but this has to be at least 6 months in duration, and the current tenant will have the right to apply to court for a new tenancy.
If the current tenant is in arrears with rent or in breach of the repairing obligations under the lease, then the landlord could take steps to evict the tenant and then grant a lease to you after the current tenant has been evicted. However, the landlord will be well advised to take legal advice before they take such a step.
There will be ways of doing the deal without the current tenant’s agreement, but it will take more time and will certainly cause some hostility from the current tenant.
Regards
John
Hi Jorg
If rent has been paid in return for exclusive possession of premises then a tenancy exists, and it sounds in your case like there is a periodic tenancy. Where there is no signed lease, this does not mean that the tenancy is devoid of other terms. In order for a party to prove that other terms were incorporated into the tenancy, they need to show there was a common agreement that the tenancy was subject to those terms. I am assuming that the unsigned lease had a tenant’s repairing obligation and there is disrepair at the property which would fall foul of that obligation if it bound the tenant.
If the lease terms were negotiated and finalised, there will be a strong argument that the terms of the unsigned lease were incorporated into the oral tenancy. There is also a decent argument to say that the terms of the unsigned lease are incorporated if a lease was given to a tenant before they took up occupancy and were told that these were the terms upon which they would tenant the property in question.
It is impossible to state with absolute certainty that the terms of the unsigned lease will be incorporated, as each case will turn on its own facts.
I hope this helps
John
Hi
We are looking to buy a cafe business. The owner is out of contract and did not want to re-sign the lease as he was selling up the business. We have not been able to contact the landlord to discuss terms as the business owner has been shielding us from him. However we have recently contacted the land lord who wants rid of the current tenant as he has sometimes missed payments and has let the cafe fall into a poor condition. The landlord and I are proceeding to draw up a new tenancy contract. How does the current out of lease tenant stand? The landlord says he has often asked him to renew but the tenant has always put it off. Can we take over the tenancy without buying the business? The landlord is keen that we take on the tenancy as soon as possible.
Hi John
I have a tenant who were given a lease but they did not sign it, they have been paying rent as per the terms on the lease and have now served their notice to quit (and referred to the lease on their letter serving their notice). Am i able to claim dilapidations?
Thanks
Jorg
Jan
I am sorry to hear that you are having difficulties. Your query raises a number of issues, not least who is your landlord?
If the estate agent does lease the property from a third party, and then in turn sub-lets the property to you, they cease being your landlord when their own lease expires. Therefore, if they were what we call an intermediate tenant, but their tenancy expired on 24 September 2012, they do not have the right to evict you and had no right to serve the section 21 notice on you.
Having said that, it is not unusual for estate agents to act as agent for a third party landlord such as your landlady, and serve notices on their behalf. However, if they are doing so, it must state clearly on the notice served that it is being served as agent for the landlady and clearly identify her.
I hope this is of assistance.
Good luck
John