A lease or tenancy is an "estate in land" and is a legal agreement between you and the landlord allowing you to use the premises, subject to pre-agreed conditions. It can be granted for a set period of time (term of years or fixed term) or for a specific period (yearly, monthly, weekly or daily).
If it runs for more than three years, a tenancy must be in writing but a tenancy can be created by the conduct of the parties: it comes into existence legally when a person is given exclusive possession of land or property (e.g., if they are given the keys) and the owner accepts rent payments.
There are some obvious obligations which a business tenant will always have to abide by – such as paying the rent at the agreed time and to the agreed extent and not using the premises for illegal purposes – but how onerous the terms of your lease are, and your obligations under it, is basically up to you to sort out before you sign it.
The landlord will do his/ her best to get the best rent and most favourable terms possible, and you may need to negotiate to, for example, get the rent down as much as possible and ensure the terms more weighted in your favour. You also need to check the lease thoroughly for any particularly onerous duties on your part and have the premises checked over for any defects.
Here are some of the terms and conditions that a lease will usually outline, placing obligations on both you and the landlord, together with some issues to consider before you agree to them:
A common commercial property lease is the full insuring & repairing lease. This is typically for a term of say 25 years, with break clauses (in case you want to end the tenancy) and with periodic rent reviews (usually every five years).
With this type of lease you would be responsible for all insurance cover to do with the property as well as putting right any disrepair existing at the start of the term.
It is possible to negotiate a reduction in your repairing liability so that you do not have to improve the property beyond its condition at the date when you took out your lease.
To do this you’ll need evidence of this existing state of repair and a “schedule of condition” is drawn up, either by you and the landlord agreeing a description of any existing defects, backed up by photos, or by a professional surveyor.
You probably wouldn’t want to sign up to this sort of tenancy without having a survey carried out to ensure it is fit for purpose with no hidden defects which you might end up being responsible for repairing.
A landlord can serve a ‘schedule of dilapidations’ requiring you to repair the property at any time – including after you leave. He/she also has the right to charge you for loss of rent during the time the repairs are being carried out. He/she can also recover the costs of drawing up a schedule of dilapidations if the lease allows them to. It is therefore a good idea to agree the state and condition of the commercial property with your landlord before you vacate the property.
A commercial lease will usually require you to honour any obligations to do with a property required by statute. These include:
For leases granted since January 1996, a tenant is automatically released from his obligations when selling the lease. There is a caveat to this though: many landlords will demand that you, as the outgoing tenant, will guarantee the incoming tenant’s performance of the lease terms before they will agree to the sale. These are known as authorised guarantee agreements.
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