Landlords and tenants have always been able to agree a whole range of different deals for different circumstances.
Even in the present market with lower rents and shorter terms on offer a lease of commercial premises, be it a shop, an office or an industrial unit is a transaction that both sides need to consider with care and proper advice… The lease is the Landlord’s document and it is designed to protect the Landlord’s income Sometimes you’ll hear the term a “clean lease”… It means the landlord gets clear income with no deductions from the rent for expenditure. From the Landlord’s point of view that is important-. That is what his bankers will expect to see in place.
The trade shorthand is” and FRI Lease.” or full repairing and insuring I’ll pick up just three of the “headline” areas
The repairing obligation gives rise to most problems- usually at the end of the lease .A typical covenant would be “The Tenant shall keep the Demised Premises clean and tidy and in good and substantial repair and condition”
Often this is assumed to include a degree of “fair wear and tear”. Not so. The landlord will expect- and in fact is entitled to require that the unit is returned at the end of the term in a state of repair such that he could re-let it the next day without a void period while the premises are brought back up to lettable condition.- If that is not the case the tenant will face a sizeable dilapidations claim. A well advised tenant will have had surveying advice on the property before the lease is signed but even then the lease needs to be looked at carefully-. Just what is the tenant to repair and replace? The, the door fastenings the wash hand basin, the shop windows, the carpets, the roof trusses-? It can soon turn into a very expensive obligation.
It’s easy to agree what the rent should be the rent at day 1 and often for the next years as well but a longer lease will usually contain a rent review clause providing for the rent to be increased usually every five years.
Often the rent review provisions start about page 52 and they are often not “ user friendly” and they have to be read along side the “ user “ clause. One of the best pieces of advice I ever got was when reading a lease to start with the rent review clause. That remains true whether acting for the landlord or the tenant. The basics of the rent review clause is to determine what rent a hypothetical land lord and a hypothetical tenant would pay in five years time if they were negotiating a new lease of the property then.
Sometimes the terms of the theoretical new letting are quite different from the terms of the deal the parties have just done., Recently on e of the large financial institutions sold off a chunk of it’s property portfolio. The user clause allowed the tenant to use the properties for a wide range of uses-including as a “trendy wine bar”.
The rent review clause however provided that the rent review was to be only on the basis of the original use or a retail shop.. So the buyers may well find in five years instead of a certain bank they have a wine bar as a tenant but they are trying to decide what the correct level of rent would have been if it had remained a bank. That’s an extreme example but it shows how it’s possible for the theoretical lease can become divorced from what parties might agree if they had sat down and talked it through at the outset.
Another issue is alienation- that is can the tenant assign or transfer the lease or sublet the property to someone else. Again these provisions are common to most leases over a year or two in length but on what terms. It’s now industry standard to require an outgoing tenant to give an AGA ( shorthand for an “authorised guarantee agreement” rather than an upmarket stove) but can the landlord insist on a rent deposit from the assignee or even personal guarantees if the lease is to pass to a limited company. That might make it more difficult to get rid of a property which is surplus to requirements.
I’ve just picked up the three “ headline” clauses from a standard commercial lease here and I’ve only just touched on a few of the areas that need to be considered by both
The commercial lease has been the backbones of the commercial property market for the last hundred years and in the present economic climate with funding limited it will gain not diminish in importance… Leases need to remain workable and secure from the landlord’s point of view if Landlords are to provide new businesses with space start and grow. On the other hand no-one gains by tenants signing up to standard documents which don’t reflect the reality on the ground. A typical lease might easily deal with obligations which can last ten years and include financial obligations amounting to £1 Million so it needs to be right at the start for everyone’s benefit.
I’ve been dealing with commercial lease for the best part of twenty years now- if you are intending to let out property or take a lease of premises and I can help please contact me.
Hi John
Iain has now left our firm and I noticed your comment had not received a response. The meaning of the “structure of a building” will normally mean the supporting walls and roof of the building. Sometimes the roof is referred to separately, but if it is not, then the roof would normally be considered to fall within the definition of the structure. If the building is built using a form of frame such as a steel frame, this frame would from part of the structure.
Items such as partition walls, would not form part of the structure.
Regards
John
John
how exactly should the words
“structure of a building”
be interpreted in a repair covenant ?
That’s several questions in one. It’s an ill advised tenant who takes on a lease of a building with a leaking roof at the outset without protecting their position. The landlord can, generally , require the tenant to repair the roof- but not to provide something better than existed at the start of the lease.
The same principles would apply to hand rails and ventilation but there are other issues too.
For example both landlord and tenant would be potentially liable for defects under the Defective Premises Act 1972. There might be employment law implications as well if staff are employed there.
The position is very different in relation to tenancies of dwellings where the landlord’s repairing obligations are much more extensive.
Hi,
Under FR&I, does Landlord responsible for Structural repairs such as roof leaking, basic H&S issues like providing hand rails to the stairs, proper ventilations etc?
regards
sam