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 im currently renting a property from an estate agent and have done so for the last 3 years. I have been issued with a section21 notice from my estate agent on 8th October 2012. But their lease ran out with the landlady on 24 September 2012. Have they got the legal right to evict me
although they no longer lease the property from the landlady? I also gotf a suspended bailiff warrant today provided that i pay them a weekly fee towards arrears. The judge said that he would not evict me and my family and now they have issued this section21 on the same day, knowing they dont have a lease for the property, can they do this and on what grounds? Thanks
Richard
Heads of agreement are usually entered into subject to contract, which means that the heads themselves are not legally binding.
A tenancy entered into in 2009 to run to 2014 would have to be made by deed, and as no such deed has been entered into, the landlord is in difficulty.
The landlord may seek to argue that the Heads of Agreement constituted an agreement for lease which could be binding, however, will not be if it is headed subject to contract. Even if the document is not headed subject to contract a court may not uphold the terms as legally enforceable unless it complies with certain legal formalities.
If you would like to instruct us to advise on this matter, please do not hesitate to get in touch on 01772 258321.
Kind regards
John
Hi Mandie
Commercial leases are often drafted in very landlord favourable terms. Often the tenant’s repairing obligation is to put the property in a state of full repair even if the property was dilapidated at the start of the lease term.
The starting point will be to get your solicitor to go through your lease to advise on the repairing obligations and whether the landlord was in breach of his obligations in relation to the flooding.
Best of luck.
John
Paul
Apologies for the delay in responding to your post, Olympics, holidays and all that!
You may well have rights to remain in the property as you have relied upon the landowner’s offer to your detriment and a legal concept known as proprietary estoppel may come to your assistance.
You should get some specific advice on this issue as you may have a legitimate claim. Please do not hesitate to give me a call if you wish to consult us on 01772 258321.
Regards
John
Hello John:
I could do with some help. I signed a Heads of Agreement back in June 2009 outlining the terms for a formal deed/contract/lease to expire in June 2014. This document has never actually been seen and certainly not signed.
I need to break the ‘agreement’ to reduce my overheads and move to another commercial unit to do this. I’ve asked the landlord if I can do this and he has thrown all threats of court action over the outstanding rent up to the expiry date noted on the HoA.
Where do I stand, John? It is a slightly unusual situation so looking over this on the internet isn’t throwing up any great help.
Hi John
I have been renting a property for the last nine years, the lease ended in 2008 and I have continued to pay rent monthly during this time. Numerous times over these years I have been unable to trade due to drainage problems which the landlord kept promising to fix, then recently with more and more rain several trading days a week were lost and I told him we were leaving. I gave him notice of 7 weeks even though we moved out in three.
First of all I was asked to stay with promises of repairs etc, but now nasty letters telling me the property has to be left in a condition suitable for re- let. Apart from the damage the water has done over and over again for the last 9 years, I have painted yearly inside and out. He now tells me I have to give 3 months notice. Surely there must be grounds to leave if I am unable to trade in the property. Please advise
Hi John, I’m a blacksmith and 6 years ago a friend offered me the use of a piece of land on which to build a workshop. Which I did at my own expense, on the basis that I would do any work on his farm equipment in lieu of ground rent. This was a verbal agreement. Recently he has said he wishes to sell the property. Do I have any rights to notice or indeed to remain until I can find other premises?
Thanks,
Paul
Hi Sheila
Apologies for the delay in getting back to you.
The status of the occupation by the new partners is not clear. If they were waiting to sign a new lease, it could be argued that they would be classed as tenants at will. This argument may have particular force given they have paid no rent. If this is the case they could be evicted without a court order.
The position would need to be carefully considered by your solicitor once they have all the facts.
Regards
John
I was partner in firm which occupied premises owned by me.New partners agreed to take a lease.They have never signed lease. They have not paid rent for 12 months at first stating that they forgot, but now say they wil not pay until work in respect of subsidence which has begun, has been completed and the affected room which represents 10% at most of total area is useable. Can I evict without court order or if I need order for possession re failure to pay rent can they use need for work to be carried out as a defence?
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