Commercial Leases: Basic Questions Answered

Taking on a commercial lease is a big step up for a business as well as a psychological boost, particularly if it has been renting premises before under a tenancy. Some businesses get carried away with this first lease excitement and fail to examine the detail and suffer consequences later. In fact commercial leases can be such complicated affairs that even long-lasting businesses with strong experience can get caught out. That’s why it is essential when taking out a commercial lease that you seek specialist advice. This is particularly so as many leases are pro-landlord. 

This article will address a few of the more common questions. However leasehold is a complex and technical area of law, so this article only covers the most basic points. If you are in the process of obtaining a lease you should take specialist advice

What if I don’t need the premises anymore?

It is not often the case that you can terminate you lease simply because you no longer require the premises. Most people fall into the trap of assuming a lease is like a tenancy, when it is actually an interest in property albeit over a limited period of time. A lease is for a set term so even of you vacate the property you remain liable for it.

You do have options however. You could for example assign your lease to a new party though any such assignment would have to be done within the provisions of your lease and it would be strongly advisable to seek legal advice in relation to an assignment. You could also surrender your lease back to the landlord, however that often requires at least some negotiation with the landlord. Finally if at the outset you are unsure about whether you could meet the full-term of the lease, perhaps you should negotiate break clauses.

Who is responsible for repairs?

Most commercial landlords not only seek to avoid responsibility for repairs and maintenance, but will actually squarely put that responsibility on the tenant, contractually speaking. A well advised tenant will try to limit the repairing and maintenance clauses. Furthermore a well-prepared in-going tenant will conduct a full survey of the property and its condition before moving in, in order to protect themselves.

What if the landlord breaches its conditions?

As a lease is a contractual relationship your remedy would most likely be damages. This would necessitate a Court application and the Court will look to compensate the party back to the position it would have been but for the loss.

Will my rent stay the same?

A typical commercial lease term will range from 3 years to 25 years and the lease itself will stipulate when and how rent reviews will be conducted. During the negotiation phase it is important that you negotiate these provisions as pro-your position as possible. Furthermore, unlike in residential leasehold, there are no strict legal safeguards against landlords raising service charge by unreasonable amounts. When it comes to commercial leasehold and service charge the law pretty much leaves it as a contractual term for the parties to negotiate. As a tenant you should negotiate service charge reviews into the lease but that won’t suffice. Provisions also need to be included stipulating how the service charge is to be calculated, that service charge accounts should be transparent, as well as a dispute resolution mechanism specifically for the issue of service charge increases. This is necessary because if the lease is minimal on detail, some landlords will take advantage of that that issue increases out of the blue and at unreasonable rates.

So I hope you found this brief introduction to leasehold interesting and useful. If you wish to discuss this or any other legal issue then please do not hesitate to contact us. Written by Bruno Rodrigues.

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