Commercial leases – frequently asked questions

COMMERCIAL LEASES – FREQUENTLY ASKED QUESTIONS

Here, we set out some frequently asked questions concerning commercial leases.

What should be included in a commercial lease?

A commercial lease covers a range of issues. The key areas are the parties’ details, the lease term, details of the rental payments and any rent reviews, insurance responsibilities, repair, redecoration, sub-letting and assignment, service charges, break clauses and whether or not the lease has security of tenure under the Landlord and Tenant Act 1954.

Can I negotiate the terms of a commercial lease?

If you are dealing with a new lease, the landlord’s solicitors will usually be responsible for preparing the first draft of the lease. The tenant is normally able to enter into negotiations regarding the terms of the lease, but the tenant’s success will depend on the quality of advice it obtains and its bargaining power with the landlord. It is common practice for the parties to negotiate a set of heads of terms – either themselves or via appointed advisors (such as agents, surveyors and/or solicitors) – before moving to the drafting stage. 

If you are dealing with an existing lease, the landlord may not agree to vary the existing terms but may be prepared to do so depending on the situation. Either way, the tenant should instruct their solicitors to review and report on the terms of the existing lease before it is acquired. If the property is adversely affected by title issues or onerous restrictions, then these should be considered before acquiring the lease.

How can I check whether I can use the property for my intended use?

A commercial lease will usually state the “permitted use” for the property, which tells you what the property may be used for. Permitted use is normally described by reference to the applicable class of planning permission e.g. Class E (Commercial, Business and Service). 

The applicable class of planning permission will usually match the associated planning permission granted by the local council, which may be an express planning permission obtained via an application or a permitted use under planning laws which do not require a formal application. It is important to verify that your intended use for the property matches with the planning permission from which the property benefits and which is permitted under the lease.

Important note: sometimes a property benefits from the appropriate planning permission but with conditions attached to such permission. It is important to be aware of any such conditions before signing the lease as they could restrict your intended use of the premises (e.g. restriction on opening hours or additional licencing requirements such as in the case of alcohol sales, or restriction on the number of children in a nursery setting).

As a tenant, how can I terminate a commercial lease if I close my business?

Depending on what the lease says, you might be able to:

• Bring the lease to an end by giving a certain amount of written notice (e.g. if there is a break clause).

• Assign (sell or transfer) the lease to another party or sub-let the property – the landlord’s prior consent will often be required.

Please note, however, if the landlord consents to you assigning your lease, you may be required to sign a legal document known as an authorised guarantee agreement (AGA). An AGA involves you agreeing to guarantee the new tenant’s performance of the lease terms, including the payment of rent, so that you may still be liable under the lease if the new tenant does not stick to the terms.

If none of the above options are viable for you, you could try to persuade your landlord to agree to a surrender of the lease, but the landlord will not be obliged to agree and may seek a payment as a condition of agreeing to this.

My commercial lease is coming to an end. Can the landlord refuse to give me a new lease?

It depends.

Commercial tenants have a legal right to renew their lease under the Landlord and Tenant Act 1954, but this is subject to certain requirements. You can request a new lease from the landlord, but the landlord can refuse to grant a new lease if they satisfy one of the statutory grounds for refusal. The grounds for refusal are limited and the landlord may have to pay you compensation.

However, it is possible for a tenant to give up these legal rights at the time of entering into the lease. This requires a special procedure to be followed involving the service of notices and the swearing of a statutory declaration. If a tenant has given up these rights in this way, we refer to the lease as being “contracted out” of the Landlord and Tenant Act 1954.

If the lease is “contracted out” then you will have no legal right to renew the lease and you will need to specifically negotiate a lease renewal with the landlord. However, if the lease is not “contracted out” then you will have a legal right to renew the lease unless the landlord has valid grounds to oppose the request. 

Specialist legal advice should be obtained prior to the expiration of the lease, and tenants should be aware that a complex statutory procedure is involved in cases where a landlord opposes the renewal of a lease.

How do I know if there is something important missing in the lease?

Unless you are legally qualified and familiar with lease documentation, you are unlikely to know if something important is missing. Therefore, you should obtain legal advice at an early stage.

For more information, please call us on 020 4571 8631 or email us at hello@birdilaw.co.uk. Alternatively, please take a moment to complete our free enquiry form.

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