Understandably, when taking on a short term commercial lease you want to avoid any unnecessary expenses, especially if you need to refurbish. Many businesses therefore decide not to hire a commercial lease solicitor to examine a short term commercial lease (seven years or less) as the lease won’t need to be registered with HM Land Registry. However, having a commercial lease solicitor check the commercial lease terms is essential if you want to avoid expensive problems cropping up with your lease in future.
A short lease can still contain onerous repair, rent and exit terms, so it is worth having it checked before you sign; our commercial lease solicitors can review it for you.
What are common commercial leasehold problems that could affect me?
Here’s a breakdown of things which can (and do!) catch business owners out in commercial leases:
Disrepair
Many commercial property leases will contain a clause which obliges you to keep the property in “good condition;” what is not made clear is that you will often be expected to do this even if the property wasn’t in good condition in the first place. Consequently, you may be obliged by the lease to leave the property in a better state than it was in when you signed the lease, meaning you’d have to fund improvements that would benefit the freeholder more than they would benefit you in the long run. If you don’t do this, the landlord could raise a dilapidation claim against you when you leave the property. A schedule of condition attached to the lease can limit your obligation to the condition the property was in at the start, and damages are capped at the loss in value of the landlord’s interest under section 18 of the Landlord and Tenant Act 1927. Our commercial lease solicitors can help you understand the full extent of the requirements and negotiate better terms for you should the proposed terms be unfair.
Rent Clauses
Low rent charges could seem like a bargain – until you find out that the lease gives the landlord free rein to increase your rent as they see fit. Not only would this cause your business’s finances to take a severe hit; it will be incredibly difficult to find someone to take over the lease from you if you decide to assign your lease. For this reason, it is essential to have an expert examine the terms in your lease and warn you if there would be a problem.
Exit clauses
Check whether the lease has a break clause that lets you end it early, and what conditions apply. Break clauses are often conditional, for example on all rent being paid and vacant possession being given, and the courts apply those conditions strictly, so a small breach can mean the break fails. Without a break clause you are usually bound for the whole term unless the landlord agrees to accept a surrender.
Assigning or subletting a commercial lease
It may well be easier (and better for everyone involved) to assign your commercial lease or sublet it to someone else, rather than trying to end the lease entirely. Unfortunately, as you likely expect, there might be terms in the lease which dictate whether you can do this or who you can assign/sublet your lease to. Usually it is for the current tenant to find someone to take over the lease, and the landlord may require the current tenant to guarantee the new tenant under an Authorised Guarantee Agreement. See our guide to commercial lease transfer. If the current tenant wants to sublet their property, the freeholder may charge a fee or include other stipulations, such as preventing certain businesses operating from the premises. Our commercial lease solicitors can advise you on these terms.
Security of Tenure
Business tenancies protected by Part II of the Landlord and Tenant Act 1954 have what is known as “security of tenure”, which gives you the right to a new lease when the term ends unless the landlord can prove one of the grounds set out in the Act, such as redevelopment or wanting to occupy the premises itself. Many short leases are “contracted out” of these rights. This is only valid if the landlord serves a warning notice and you sign a declaration before the lease is entered into, and the lease must refer to them. If the property proves to be in an advantageous location, you will likely be disappointed to find out that you have no automatic right to renew your lease. Our commercial lease solicitors will be able to explain to you whether or not your commercial property lease would be covered by this act, advise more on the grounds on which a landlord can oppose a renewal and explain to you the full implications of being “contracted out.”
Your Right to make refurbishments
Just as your commercial property lease could demand you fund refurbishments as part of keeping the property in “good” condition, it may also prohibit you from making certain changes to the property without the freeholder’s consent. For example, leases will typically prevent the tenant from cutting through external walls or removing windows without the freeholder’s consent. This isn’t necessarily a cause for concern in leases; most leases will impose some restrictions and they are generally not a problem. However, should you want to make a change to the property that would be prohibited by your lease, our solicitors can help you request a licence for alterations from your landlord, which would allow you to make these changes. The licence will usually say whether you must remove the alterations and reinstate the property at the end of the lease.
Short Term Commercial Lease FAQs
Not always. A tenancy granted for six months or less is excluded from the Landlord and Tenant Act 1954 unless the lease allows it to be renewed beyond six months, or you (and any business you took over) have been in occupation for more than 12 months. Longer leases are protected unless they have been contracted out.
Leases of seven years or less do not need to be registered at HM Land Registry. A lease of more than three years must still be made by deed to be a legal lease, so it needs to be properly signed and witnessed.
A lease gives you exclusive possession of the premises for a term, at a rent. A licence is only permission to use the premises, for example a desk in shared space. The label in the document does not decide it: if you have exclusive possession for a term at a rent, it is usually a lease (Street v Mountford). This matters because a licence does not give security of tenure.
Yes. Before the lease is entered into, the landlord must serve a warning notice and the tenant must sign a declaration (or a statutory declaration if the notice is served less than 14 days before). The lease must refer to the notice and declaration. Without these steps, the contracting out is not valid.
A tenancy at will lets you occupy with the landlord’s permission for no fixed term, and either side can end it at any time. It is sometimes used while a lease is being negotiated. It does not give security of tenure, so it should be replaced by a proper lease as soon as possible.
Expert Advice from Our Commercial Lease Solicitors
Whether you are acquiring your first commercial premises, expanding your property portfolio or negotiating terms with a tenant, specialist legal advice can help you avoid costly mistakes. Our team of commercial property lawyers, commercial conveyancing specialists and commercial landlord and tenant solicitors advises clients on a wide range of commercial property matters.
At Starck Uberoi, our commercial lease solicitors offer trusted advice on all aspects of a commercial property lease. Whether you need help drafting a lease agreement for commercial premises, negotiating commercial lease terms, or reviewing commercial lease rent, we’ll make sure your position is protected. We also support clients with short-term commercial leases, commercial lease transfers, and the forfeiture of a commercial lease where appropriate. If you’re facing a commercial lease dispute or entering new commercial lease negotiations, our experienced team provides pragmatic legal guidance tailored to your circumstances.
Our Offices
Get in touch today and speak to one of our commercial lease solicitors about your short term lease. We are here to help you every step of the way.
Whether you are closer to our Brentford office, our Ealing office, our Belgravia office, our Pinner office, our Richmond office or our Canterbury office, you can arrange an appointment at whichever suits you best. Our partner, Raminder Uberoi, can also offer a Notary Public service at any of our London offices.
