What to consider when taking on a commercial lease
Taking on a commercial lease as a tenant is a big decision, but knowing the ins and outs can help you to avoid any problems in the future.
In this blog, our commercial property solicitors explain how commercial leases work and outline what tenants should consider when taking one on.
What is a commercial lease?
A commercial lease is a legally binding contract between a landlord and a tenant. This lease gives tenants the right to use the property for business use for a set period in return for a payment of rent.
What’s the difference between granting and assigning a lease?
Granting and assigning a lease are separate, distinct business transactions.
Granting a lease creates the lease for the first time. The lease is granted by a landlord to allow a tenant the right to exclusive possession of land or property for a fixed period (a ‘term’) in return for rent.
Assigning a commercial lease involves transferring the remainder of an existing lease from one party to another. For example, if a tenant is no longer wanting to use the office space they are renting, they can assign the lease to another business owner. It is often a condition of the assignment that the landlord has to give their consent before a tenant can assign a lease to another party. This would be documented in a landlord’s ‘licence to assign’ document.
What should a tenant consider when taking on a commercial lease?
Other than the obvious commercial terms, including rent, term rent review and lease breaks, one of the biggest risks for a tenant taking on a commercial lease relates to the Landlord and Tenant Act 1954.
The Landlord and Tenant Act 1954
The Landlord and Tenant Act 1954 gives commercial tenants the right to a lease renewal at the end of the lease’s contractual term and the ability to remain as occupants of the property. This gives tenants the security of tenure, which provides the tenant with an automatic right to remain in the business premises after the lease term ends.
Under the Landlord and Tenant Act 1954, even when the lease expires, the commercial tenant can continue to rent the property and the landlord can only terminate the lease under specific rules of the Act.
Agreeing on rent and rent periods
The rent amount and frequency of reviews are documented in the lease. The rent can be adjusted in line with inflation or the current market value of the premises. However, it is important that tenants check rent review clauses in their lease before signing. A commercial property lawyer can advise you on the terms of the rent review. It is also recommended that you seek the advice of a surveyor.
A commercial lease for part of a building will often include service charges which cover the cost of maintaining or repairing the property. A solicitor specialising in commercial leases can advise you on the service charge clause in a lease.
Check the state of repair
Something that catches many tenants out is where a commercial lease specifies that the tenant must keep the property in ‘good condition’ and yet, the property did not meet that standard at the start of the lease.
It’s important to check the condition of the premises before entering into a commercial lease, and how this corresponds with the tenant’s repair clause in the lease. It is recommended that you seek the advice of a surveyor in respect of your repair liability.
Contact our expert commercial lease solicitors
Leases come with risks and responsibilities. That’s why it’s important to consider the terms of a commercial lease and any associated documents.
The law surrounding commercial leases is complex and it is highly recommended that you seek advice from an experienced commercial property lawyer to discuss your options.