Commercial Lease Solicitor London
by Tarjinder Rayat — Posted on 3 January, 2020
Commercial Lease terms that Landlords and Tenants should consider when granting or assigning leases of shops, offices or restaurants
Understanding the Terms of a commercial lease in London
A commercial lease is not completely distinct from a residential landlord and tenant agreement. However, there are some key differences and complexities involved. These complex obstacles mean that it is recommended to instruct an experienced commercial lease solicitor.
Most commercial leases won’t be based on a standard template form and are individually negotiated for the business. This is because the type of business that takes the lease can drastically alter what will be needed. A restaurant may only need a short lease with allowances to make large alterations for kitchen appliances, but a retail chain would need completely different terms and alterations. That is why each lease must be tailored to the business.
What should a commercial lease include?
When drafting a commercial lease, these are the key terms that you would need to consider:
Property and Contact Details
A commercial lease should include the landlord and tenant’s full details such as their names and addresses. If the tenant is a company, make sure to include the company registration number and address of the registered office.
The property details should explicitly lay out the address and the space you are renting; whether it be an entire building, specific rooms or specific floors. Any common areas such as elevators and restrooms should be included too.
Commercial lease terms are negotiable with the landlord. The specific date of expiry should be made clear on the lease. If you the term demanded by the landlord may be too much of a commitment, you would need to make sure there are allowances to assign the premises to another business during this time. This will be looked at in more detail in the ‘Alienation’ section below. You could also consider a ‘break clause’ which will also be discussed in this blog.
This section should contain the exact amount of rent to be paid and how often those payments need to be made. Rent is often demanded on usual quarterly dates: 25th March 24th June 29th September and 25th December. You will also need to find out if VAT is being charged on the rent, if so, this should be included on the lease.
With longer leases over 5 years it is common to have provisions for a rent review. A rent review is where the landlord values the premises and reviews the rent that they charge you. The purpose of a rent review is to ensure that the landlord charges rent that is in line with the rental rates of the current market. The lease should set out when the review will take place. The figure that the landlord gives is negotiable, you are not obligated to accept the first number they offer you. It is advisable to instruct a solicitor to assist with rent negotiations. Starck Uberoi’s experienced commercial lease solicitors can give expert advice on your rent review negotiation.
The position with regard to break clauses in respect of business tenancies within the protection of the 1954 Act is as follows. The contractual tenancy under a term certain continues as a contractual tenancy until the term certain comes to an end by effluxion of time or is brought to an end at an earlier date by the valid exercise of a break clause. If the break clause is exercised by the tenant his contractual tenancy is brought to an end and with it his right to occupy the property.
If, however, the break clause is exercised by the landlord all that happens is that the tenant’s contractual tenancy is continued as a statutory continuation tenancy on exactly the same terms as the contractual tenancy until that statutory continuation tenancy is itself brought to an end. If the landlord wishes to bring the tenant’s statutory continuation tenancy to an end he can only do so by serving a notice under S.25 of the 1954 Act. S.25 notices fall into two categories: (i) where the landlord does not oppose the grant of a new tenancy and (ii) where the landlord opposes the grant of a new tenancy.
If the landlord wishes to oppose the grant of a new tenancy he can only do so by proving one or more of grounds (a) to (g) in S.30(1) of the 1954 Act. The grounds relied upon must be specified in the S.25 notice and cannot be added to later. Once a valid S.25 notice has been served on the tenant he must by the date specified in the S.25 notice issue proceedings in the county court claiming a new tenancy. If the proceedings are duly issued the case will wind its way slowly to trial unless the parties settle the case in the meantime.
Grounds (a), (b) and (c) involve some element of breach of obligation on the part of the tenant and the breach has to be of sufficient seriousness to persuade the court that it is reasonable to deprive the tenant of his tenancy because of it. Ground (d) involves the provision of suitable alternative business premises for the tenant to rent. Ground (e) seldom if ever applies and so one is left with the two mandatory grounds namely (f) (i.e. redevelopment of the property by the landlord) and (g) (i.e. the landlord desiring to use the premises for his own business). If the only ground upon which a landlord succeeds is either (f) or (g) he must pay the tenant compensation. Furthermore, a landlord cannot rely on ground (g) unless and until he has been the landlord for 5 years.
The same principles with regard to ending a business tenant’s statutory continuation tenancy apply where there is no break clause and the contractual tenancy simply expires through effluxion of time.
If the original tenant wants to leave a lease that is not yet expired, they have the option to transfer it to someone else, this is what is meant by assigning the lease. This can only be done with the landlord’s consent, which cannot be unreasonably withheld. It’s important to check any conditions that the landlord stipulates for them to grant a licence to assign.
Commercial leases will usually stipulate that it is your responsibility as the tenant to keep the premises clean tidy and in good repair and condition. Anything you are specifically liable to repair needs to be explicitly stated in the lease agreement.
Landlord and tenant’s obligations
Any obligations that the landlord or tenant must carry out should be included in the lease. This could be anything from rubbish disposal and maintenance to health and safety regulations.
Alterations to the premise cannot be made without the landlord’s consent. The commercial lease should set out what kind of alterations can be made or what specific ones cannot be made; For example, a commercial lease could include a covenant that signs attached to the outside of the building are not allowed.
When thinking about your business in the space you are leasing, think of what alterations you would need. Perhaps you would require adding cubicles or requiring the space for better communication. Changes like that need to be checked with the landlord and included on the lease to avoid complications later down the line.
Covenants that a landlord is required to abide by should be outlined in a commercial lease. For example, an express covenant for quiet enjoyment by landlord would be included. This means that you can quietly hold and enjoy the demised premises without interruption by the landlord.
A commercial lease will usually include the type of business activity that a tenant can carry out in the premise. If you alter the type of activity carried out, you first need to make sure a provision for future change of use was included in the lease when it was initially negotiated. An example would be a restaurant starting to deliver food using online sales. If there’s no provision for future change of use, this could be interpreted as breaking the activities/uses clause.
Forfeiture is when a landlord can re-enter the property and prematurely end the lease if any of the terms are broken or specific events take place e.g. failure to pay the rent or acts of insolvency.
Forfeiture is not always the best way to end a lease for the landlord or the tenant. A tenant could make a claim for a financial loss or unlawful forfeiture if the lease is wrongly terminated.
According to the Landlord and Tenant Act 1954 Part 2, occupants of certain business premises have a statutory right to stay in the building and can renew their lease when the term ends. These rights can be legally enforced by the tenant. However, if a tenant is proven to have breached their tenancy agreement, perhaps by failing to pay rent, then a landlord has the right to refuse the renewal of a commercial lease.
If a lease has been ‘contracted out’ of, it means that the tenant has given up their right to have the lease renew at the end of the tenancy. A strict procedure must be followed in order to ‘contract out’ of a lease which involves serving the tenant a formal notice.
How Starck Uberoi can help
Our experienced specialist Property solicitors can assist you with your commercial lease. Our solicitors are highly skilled to ensure your matter is always dealt with effectively and within the legal timeframe. For more information, please visit our Commercial Lease page. We have offices located in Brentford, Ealing, Canterbury and London Belgravia. For an appointment at one of our offices, email us at email@example.com or give us a call on 0208 840 6640.