Commercial lease agreements – what should they contain

21 Jan Commercial lease agreements – what should they contain

Landlord & Tenant – Agreement terms

An agreement to create a lease should include the following terms:-

  • The identity of the landlord and tenant.  
  • A description of the property to be leased.
  • The duration of the lease.
  • The rent and service charge payable.
  • The commencement date.
  • The rent review mechanism.
  • The liability of the parties for repairs, insurance, utilities and services, and future legal costs.
  • Any other restrictions as to the use of the premises or on alterations to the premises, including restoring the premises to good order.
  • Any prohibition or restriction concerning future assignment and underletting.
  • Where relevant, the landlord’s election whether or not to waive the exemption from VAT on rent.
  • Provisions as to termination and any option to renew.

 

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  1. Lease Negotiations

Landlords must make offers in writing which clearly state:

  • the rent; the length of the term and any break rights;
  • whether or not tenants will have security of tenure;
  • the rent review arrangements;
  • rights to assign, sublet and share the premises;
  • repairing obligations; and the VAT status of the premises.

 

Landlords must promote flexibility, stating whether alternative lease terms are available and must propose rents for different lease terms if requested by prospective tenants.

  1. Rent Deposits and Guarantees – the lease terms should state clearly:-
  • any rent deposit proposals, including the amount,
  • for how long and
  • the arrangements for paying or accruing interest at a proper rate.

Tenants should be protected against the default or insolvency of the landlord. State clearly the conditions for releasing rent deposits and guarantees.

  1. Length of Term, Break Clauses and Renewal Rights

The length of term must be clear. The only pre-conditions to tenants exercising any break clauses should be that they are up to date with the main rent, give up occupation and leave behind no continuing subleases. Disputes about the state of the premises, or what has been left behind or removed, should be settled later (like with normal lease expiry).

The fall back position under the Landlord and Tenant Act 1954 is that business tenants have rights to renew their lease.

It is accepted that there are a number of circumstances in which that is not appropriate. In such cases landlords should state at the start of negotiations that the protection of the 1954 Act is to be excluded and encourage tenants to seek early advice as to the implications.

Next week….. we will be looking at rent reviews, assignment & sub-letting and service charges.

Contributor: James Page MRICS

 

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