While the majority of things you need to know about leasing commercial property will be set out in the terms of your lease, there may well be some matters you require additional assistance with. Our commercial lease solicitors are here to answer your questions.
How do I extend a commercial lease?
If you are familiar with residential leasehold property it’s important to note that leasing commercial property is very different. The lease extension process for a commercial property differs from the process for a residential property due to the fact they tend to be much shorter, usually between 1 and 25 years. Another key difference between the two is that a residential leaseholder is generally not expected to stay in the property for the full duration of their lease (seeing as residential leases can be as long as 999 years!), while a commercial tenant is generally expected to stay in the property for as long as the lease has been granted for. Towards the end of your lease, you can request a lease extension from your landlord if you would like to remain in the property. If your lease is protected under the Landlord and Tenant Act 1954 this means that you have security of tenure and have a right to remain in occupation. In which case your landlord will not be able to deny your request without reasonable grounds, and our commercial lease solicitors can advise you in this regard. However, be aware that some leases will contain a clause which prohibit you from extending your lease, even if you would otherwise be able to under the Landlord and Tenant Act 1954; think carefully before signing any leases which contain this clause. If you are just about to commit to leasing a commercial property please take legal advice to ensure you understand all the clauses and the potential implications. Contact us to speak with a knowledgeable commercial lease solicitor. Assuming there are no problems, it will then be up to you and your landlord to agree how many more years to extend the lease by and a price for doing so. You may also be able to change some of the terms in your lease when doing this.
How do I vary a commercial lease?
You don’t have to create an entirely new lease if you want to change some of the terms. If you and your freeholder/leaseholder can agree on the changes, a solicitor can help you create a deed of variation of lease which will set out what is to change. All parties involved will need to agree to the new terms before the lease can be varied. The process is not dissimilar from the way leases are varied for residential leasehold properties – find out more in our blog post on creating a deed of variation of lease.
Can a commercial tenant walk away from a lease?
When leasing commercial property the terms of the lease may include a “break clause” which sets out the conditions under which a tenant can end their commercial lease early. If you want to end your lease early, you will need to follow the requirements set out in your lease. If there are no break clauses in your lease, you will need to ask your landlord if they will allow you to end or surrender your lease early, this can be done by way of a Deed of Surrender and our commercial lease solicitors can help you with this process While your lease is still valid, you will be obligated to abide by its terms until it expires or is surrendered.
Can I sell my lease to someone else?
Yes – this is known as assigning a lease, though it isn’t as straightforward as simply finding someone to buy your lease from you. Your landlord may impose some restrictions on who the buyer can be, what references they are able to provide and ask you to accept some liability if the buyer you find is a bad tenant. It’s important to note your commitments do not necessarily end when you assign your lease, many leases will require you to enter into an Authorized Guarantee Agreement (AGA). This means you will be obligated to guarantee the new tenant and the landlord may pursue you if the new tenant is in breach of the tenant covenants contained in the lease. You can also agree to sell your business to the new buyer of the lease – this is called selling the goodwill and/or assets of the business. Our commercial lease solicitors can also help you with the business asset sale in addition to the lease assignment. You may also be able to sublet/underlet your commercial property, if your commercial lease terms allow you to. If your lease imposes conditions on which you can sublet, you will need to abide by these or speak to your landlord about varying them.
Who is responsible for the maintenance of a commercial property?
While it will depend on the precise terms set out in the lease, usually the tenant will be responsible for the maintenance of their internal property. The landlord will typically be responsible for the upkeep of communal areas and the external structure of the property, but commercial tenants will often be expected to pay a service charge towards the upkeep of these areas. In which case, the lease will determine the proportion of the tenant’s contribution for service charges If the lease is a lease of the whole building, the tenant will generally be required to repair and maintain the whole building including the exterior and structure of the building as this forms part of their demise. Anything not listed in the lease as the landlord’s responsibility will generally be the responsibility of the tenant, so far as it applies to the property demised by the lease. When leasing commercial property the landlord may contractually oblige the tenant to keep the property in good condition – even if the property wasn’t in a good condition when the tenant purchased the property. The lease could also include what is known as a Jervis v Harris clause which is a repair clause in favor of the landlord. If the lease includes this clause, the landlord will have the right to serve a notice on the tenant specifying any breaches of the repair covenants requesting the tenant to remedy the breaches. If the tenant fails to deal with the same in a timely manner or within a specified period, the clause will allow the landlord to enter the property, carry out the repairs and recover the costs from the tenant. Make sure you check the commercial lease terms thoroughly before you sign or better still, ask one of our commercial lease solicitors to check the lease and advise you on the terms. It is wise to have a survey of the property undertaken before you take on the lease to reduce the likelihood of your business being held liable for any disrepair that existed before you began occupying the property. If the commercial lease terms demand that you keep the property “in good condition,” or if you find there are defects at the property or the property is generally in poor condition, the last thing you want is to have to fund repairs for damage you didn’t even cause! We suggest considering drawing up a Schedule of Condition which is a report of the condition of the property at the time the lease is entered into. The purpose of recording the property’s condition is to protect you from dilapidations claims when you vacate the property, and limit your repairing obligations throughout the term.
How can a landlord terminate a commercial lease?
For leases in England and Wales, if your commercial lease includes a forfeiture clause, the landlord can end your tenancy early without your agreement. Usually, they will only be able to end your lease this way if you have breached any of the tenant covenants in the lease, and only if your lease gives your landlord the right to end the lease as a result of the breach. Unless the tenancy is being ended because the tenant hasn’t paid rent, the landlord will generally need to serve a Section 146 notice onto the tenant which sets out how specifically the lease was breached and when the property needs to be vacated. If the lease is being brought to an end because the tenant hasn’t paid the rent, the landlord can forfeit your lease without serving notice.
What is the minimum term for a commercial lease?
There is no requirement as to how short or long a commercial lease may be. A commercial lease however is generally for a fixed term between 1 and 25 years. A short term commercial lease that is less than 7 years will not be registrable at Land Registry whilst a lease that is over 7 years will be registered at Land Registry and have its own leasehold title number. Once the lease term expires, if the lease is non-renewable, or in other words not protected by the Landlord and Tenant Act 1954 (1954 Act), the tenant must vacate the property. However, if a lease is renewable, or contracted inside the 1954 Act, at the expiry of the term the tenant may “holdover” which means the tenant can legally continue to occupy the property under the terms of the lease until such time that a new lease is agreed. There are however risks with holding over both for the tenant and the landlord. Contact one of our commercial lease solicitors to be advised as to the risks.
Do you pay Stamp Duty Land Tax when leasing a commercial property?
Stamp Duty Land Tax (SDLT) may be payable when taking on a new commercial lease if there is a premium being paid and/or the rent you will be paying is above the threshold bringing it into the realms of Stamp Duty. SDLT on new leases is charged on the net present value (NPV) which is calculated based on the premium and the rent due under the lease. Once the NPV is calculated, SDLT on the first £150,000 is charged at 0% and anything over this value is charged at 1%. If there is a rent review in the lease, a further calculation might be required at the end of the rent review year and another calculation once the new rent is agreed. You must also note that if VAT is charged on the rent, this is also taken into account when calculating the NPV. If you are taking on an existing lease, at zero premium or a premium below the threshold then no SDLT will be payable. Contact one of our commercial lease solicitors for further SDLT advice or an estimate calculation.
Who pays the legal fees in a commercial property transaction?
There are no set rules as to who pays the legal fees in a commercial property transaction, unless the lease sets out terms specifically related to costs. Generally, it will be up for negotiation between the parties and the outcome can vary. It is not uncommon for a landlord to request that their legal fees are paid by the tenant. If a new lease is being granted and the tenant agrees to paying the landlord’s legal fees then they will cover the costs of the landlord’s legal fees by paying the requested amount to their own solicitors who will then give a cost undertaking to the landlord’s solicitors. If an existing lease is being assigned to an incoming tenant, then it is for the assignee and the assignor to negotiate as to who pays the landlord’s legal fees. It may be the case that the incoming tenant (assignee) burdens the fees in full or the fees are split between the assignee and assignor. In many cases however each party will be responsible for their own legal fees. It very much depends on the nature of the transaction and the parties’ bargaining powers. We advise that you consult with one of our commercial lease solicitors who can provide guidance on negotiating the Heads of Terms including the element of costs.
Do you need a commercial lease solicitor?
We strongly advise that you instruct a solicitor to deal with your commercial property matter to ensure your financial investment is protected. Commercial property transactions can be complex and intricate and will require professional expertise from the outset. Our commercial property team can provide you with valuable guidance at every stage:
- Negotiations: We can assist you when negotiating and agreeing the Heads of Terms with the other parties to best safeguard your interest.
- Contractual protection: Our commercial property solicitors can draft, review, amend and agree all the contractual documents related to your matter, including the Contract, Lease, Business Agreement, Lease Agreement, License to Assign, Rent Deposit Deed and any other documents relevant to your matter, to ensure there are no unfavorable or onerous clauses and that the documents correctly reflect your instructions.
- Title Investigations: Our experienced solicitors can conduct thorough due diligence on the property and/or business you are purchasing including investigations on the title, reviewing Local Authority, Water & Drainage, and Environmental searches, ensuring compliance with planning, building regulations and licensing requirements, and dealing with the transfer of Employees under TUPE regulations, amongst many other things which require legal expertise.
- Completion: Your solicitor can mitigate potential risks and ensure that all parties have complied with their legal obligations, contractual documents have been signed correctly, and finally navigate a successful completion.
Expert Advice from Our Commercial Lease Solicitors
Businesses, landlords and investors often require advice on a combination of property transactions and ongoing property management matters. Our commercial property legal team includes experienced commercial property conveyancing solicitors and specialist commercial lease lawyers, enabling us to provide joined-up advice across all aspects of commercial property law.
If you’re entering into a commercial property lease, our experienced commercial lease solicitors provide the clear, strategic advice you need. We guide clients through commercial lease negotiations, ensuring every lease agreement for commercial premises reflects fair and practical commercial lease terms. Our team advises on commercial lease rent reviews, short-term commercial leases, and commercial lease transfers, always with an eye on protecting your long-term interests. Should issues arise, we’re also experienced in managing the forfeiture of a commercial lease and resolving any commercial lease dispute swiftly and effectively.
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Read more:
- Commercial Lease Dispute Solicitors
- Commercial Conveyancing Solicitors
- Commercial Lease Terms. What should be included.
- Why you need a Solicitor for a Short Term Commercial Lease
- What are the grounds for a forfeiture of a commercial lease
- Should I use a Model Commercial Lease ?
- Why you need a solicitor for a short term commercial lease.
- Commercial Lease Transfer
