Do you need a commercial lease prepared? Would you like an expert to review an existing lease? Is your current lease agreement up for renewal? We can help.
Leasing your commercial premises is a long term, substantial financial commitment for a business. As a business owner you need the right advice to understand what you are signing up to for the next five, ten or even more years.
What is a commercial property lease?
A commercial property lease agreement is a formal document setting out the terms and conditions associated with a tenant’s use and occupation of a commercial premises, for business purposes and for an agreed period of time.
It will include details such as:
- the term of the lease – the number of years for which the lease runs
- the amount of rent payable each year and when it must be paid
- any other costs – such as service charges, insurances etc
- a rent review clause – stating if there will be any periodic rent increases
- a break clause – whether there is an early option to end the lease
- lease renewal options
It is not unusual for a lease also to include conditions that must be met by the landlord prior to both parties entering into the formal lease agreement.
What is a break clause in a commercial lease agreement?
Some commercial lease agreements contain a “break clause” option which allows the tenant to exit the lease early, normally at fixed points in the lease term. To exercise the break clause certain conditions must be satisfied, proper notice must be given and there must be no outstanding payments due by the tenant at the time notice is given or by the date on which the lease ends.
Similarly, there may also be a “mutual break clause” option that entitles either the tenant OR the landlord to end the lease early, again after satisfying certain conditions.
If you think you may wish to exercise a break clause, it is important to put two key dates in your diary. The first is the date on which the break clause is effective and the second is the date by which notice of exercising the break clause needs to be served on the other party to the lease. Failure to give notice in time may result in missing the opportunity of an early exit should you want one.
What rights do commercial tenants have without a lease?
It is perfectly possible for a landlord and tenant to make an informal agreement between themselves. However, without a proper commercial lease agreement in place there are limited legal obligations placed on the landlord and should any disputes arise, it can make matters difficult to resolve.
While commercial tenants without a lease do not have all the same rights as tenants with a lease, they still have certain rights to be aware of. These include:
- Implied lease terms
- Notice requirements
- Right to a habitable premises
- Protection against unlawful eviction
- Fair use of security deposits
- Anti-discrimination laws
- Right to quiet environment
- Payment for improvements
- Commercial tenancies and local laws
If you do not have a lease agreement with your business landlord and issues occur we advise seeking legal advice from a commercial property solicitor who can explain your rights.
Does a commercial lease need to be registered?
Commercial leases must be registered with the Land Registry under certain circumstances. These include:
Both landlords and tenants should seek legal advice to ensure compliance with registration requirements and to understand the benefits of registration for shorter leases.
Can a commercial lease automatically renew?
There are commercial leases that automatically renew, however there are a few things you should be aware of to avoid breaching any clauses in the agreement and leaving yourself open to legal consequences.
First and foremost, check your lease agreement! Within the agreement there will be a clause or section that outlines what happens at the end of your lease. It should specify whether it is an automatic renewal, termination or extension.
You should also be aware of “security of tenure” which is a statutory right to an automatic renewal of a commercial lease at the end of the term (subject to some exceptions), granted under the Landlord and Tenant Act 1954 (LTA 1954).
If you are unsure on where you stand regarding renewal or security of tenure, check your lease agreement or seek legal advice from a commercial property law expert who can clarify your legal position.
What happens if a commercial lease is not renewed?
Lease agreements will have a clause that outlines what happens at the end of the tenancy and what is required of the tenant before the end of the term. The landlord will normally have the option of whether to offer a renewal.
If the lease is not renewed and the landlord terminates the tenancy, they must provide a section 25 notice to the tenant. They are then required to leave the premises by the end date of the lease.
Please note that if the lease has been excluded from the LTA 1954, then the lease cannot be renewed except by informal agreement with the landlord.
Dilapidations
At the end of a lease term there is normally a responsibility on the tenants to fulfil any “dilapidations” required to reinstate the property to an acceptable condition. This may include repainting, wall repairs, removal of partitions, cabling, infrastructure and more – generally returning the property to the condition it was when they moved in at the beginning of the lease. This can be a significant responsibility and expense, particularly if the tenant has not kept the property to a reasonable standard or has made major changes. It is important to understand this liability at the outset and budget for it when the lease comes to the end.
In practice, the level of dilapidations is often the subject of a negotiation between the landlord and tenant, often with the assistance of commercial surveyors who can place a value on the work required. This negotiation will take account of the property condition at the beginning and end of the lease and what condition the landlord actually requires the property to be left in. They may agree to a financial settlement instead of physical work being carried out, depending on what their plans are for the building. Again professional advice is important to agree a fair sum.
Before signing a commercial lease agreement, you need to make sure you understand what you are signing up to and be fully aware of your future legal obligations and that of the landlord. Instructing a legal professional to review the document is strongly recommended to ensure you are not faced with any nasty surprises and costs down the line.
Is Stamp Duty payable on commercial leases?
Stamp Duty (technically Stand Duty Land Tax) may be payable on your commercial lease when it is signed. This is calculated using a number of factors such as the annual rent and the length of the lease. To find out how much Stamp Duty you are likely to pay, visit:
Stamp Duty Land Tax: Rates for non-residential and mixed land and property – GOV.UK (www.gov.uk)
How can Backhouse Solicitors help?
Our friendly and helpful team of commercial property solicitors are here to assist with your new lease agreement, lease extension, lease assignment or any other lease requirements. To speak to one of our experts and book a free initial consultation, contact us today.
Tel: 01245 893400
Email: info@backhouse-solicitors.co.uk
Visit: 17 Duke Street, Chelmsford, CM1 1JU
Or send us a message through the Contact Us page on this website.