Commercial property leases - an introduction

Are there additional costs I should look out for?

You need to have a clear understanding of what is included in a service charge. They typically include repairs and maintenance of the building and communal areas, heating and lighting and cleaning. You need to ensure what is covered under this charge is fair and also look at how the cost is calculated. You ought to also consider whether your contribution should be capped, this may be particularly relevant where you are taking a short term lease but the building is in need of imminent substantial repair. Secondly, the insurance costs on the building need to be looked at. Tenants should find out who pays for this. Finally, the other main additional costs are repairs. Consideration should be given to who is liable for the cost of these. It is also worth finding out what state of repair the building needs to be in at the end of the lease.

What is a break clause and why should I have one?

If you are having a lease drawn up you should aim to have a break clause inserted. This gives you or the landlord the chance to end the lease before the full term. A break clause serves to protect you if your business struggles and you need to cease trading. A break clause can save you from being personally liable for the rest of the lease costs even if you have gone out of business. It is also important to consider the timing of a break clause and if there is a specific event in the lease that you need the clause to co - inside with. A typical event would be the timing of a rent review and assessing when the break clause can be applied taking into consideration the notice period the tenant would need to give. If they are timed correctly in the tenant’s favour the landlord will be aware that if they make unreasonable rent increases, the tenant will implement the Break Clause.

Can a commercial lease be ended early?

There is not a single answer to this question. If you have signed a lease agreement document, chances are you are tied into it. In order to see if it can be ended early specific clauses will need to be looked at to assess the options. The first and most straight forward way of being able to end a lease is if you have a break clause inserted as discussed above. If you are fortunate to have one of these clauses you must stick stringently to the terms.

If however your lease is without a Break clause you could consider the following options.  It may be possible to sub let your lease to someone else if there is a clause allowing this. However, tenants are likely to still have overall responsibility and may not be able to sub let for less than what they are currently paying.

Tenants can ask landlords to give up the lease, surrender it. In today’s economy many landlords will not allow this but they may consider taking a settlement payment to surrender the lease early.

If your business is trading at a loss you may have thought about letting the lease go with all personal liability. However, you must be careful when considering this option as most leases ask for a guarantee that will be used if you choose this option.

Can I just renew my lease at the end of the term?

If you have been leasing the building and your business is trading well from these premises you may want to renew your lease at the end. The Landlord and Tenant Act 1954 does offer tenants some protection in the form of what is know legally as ‘Security of Tenure’. It is not straight forward for the landlord to simply evict the tenant at the end of a lease. If the Landlord wishes to have the property back, they must give notice and provide reasons why they do not want to renew the lease. Reasons can include the tenant’s disregard for complying with the clauses of the lease. They may also include the Landlord demonstrating that they want to redevelop the property or if the landlord has owned the property for more than five years then he wishes to use it for his own use and occupation.

What is a schedule of dilapidation, when does it apply?

The focus of this is repairs and damage. What the schedule includes has a direct correlation with obligations outlined in the lease in the clauses concerning repair. These schedules can be issues at different stages of a lease and the most contentious tend to be those that are issued by the landlord after the end of a lease. Schedules typically outline all the areas of repair required and the costs are often supplied by a landlord’s surveyor. The difficulty with these schedules is when they are issued at the end of a lease once a tenant has moved out; legally the tenant cannot then access the building to make the repairs. Tenants are often aggrieved by this situation. This is because they often feel that they could have made the repairs more cost effectively than the costs being proposed by the landlord. Tenants can help protect themselves from these schedules by carrying out repairs during the course of the lease on an ongoing basis rather than leaving it all to the end.  Disputes concerning dilapidations are complex and many factors need to be considered in challenging and issuing a schedule.