Entering into a Commercial Lease: Important Considerations for Landlords and Tenants

September 30, 2024

Entering into a Commercial Lease: Important Considerations for Landlords and Tenants

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By Oliver Morris

If you are considering entering into a lease for a property, it is important that you have a basic understanding of the agreement you are entering into to avoid getting stung further down the line.

Darwin Gray has a vast amount of experience assisting both landlords and tenants to navigate the process from start to finish.

The first step of many commercial transactions is to agree heads of terms. These set out the main points of the lease and govern how both parties will be treated during the course of the relationship. It is best to get legal advice on these at the outset of the matter to ensure that you are protected before everything is finalised and agreed. The items likely to be covered in the heads of terms include:

1. Length of Lease

This is the number of years a tenant will be in occupation of the building. The length of the lease needs careful consideration as a tenant does not want to be in a position where the location of their business is no longer practically suitable or financially viable, and they are still tied in for several years. It is also important for landlords when it comes to planning the occupation of the building and when they might need to consider finding new tenants.

2. Rent Review

Many leases will contain a clause which permits the landlord to increase the rent at intervals during the term of the lease. Whilst the initial rent may be clear, a clause like this might not be so obvious and it is important to be aware of the provisions it contains and how the rent will be calculated in the future.

3. Break Clause / Break Date

A tenant (or sometimes the landlord) may have the option to bring the lease to an early end. These often come with conditions that must be satisfied first, and if these conditions are not met the lease will not end. It is important that each party understands this clause and its requirements, so that it can be effectively invoked if needed.

4. Security of tenure

This is a statutory right for the tenant to remain at the property at the end of the lease term, subject to certain statutory limitations. This is a fundamental point to agree at the outset between the parties.

5. Service Charges

These are payments that a tenant must make towards the cost of any service provided by the landlord. These often include any repairs or maintenance made to shared areas, but can include a wide range of other services.

The lease will often dictate what these costs cover, and how a tenant’s contribution will be calculated.

6. Repair obligations

The tenant will be required by the lease to keep the premises in a state of repair. At a minimum, this will mean in the condition in which they found it, but can often go further and require the tenant to put the property in a better position i.e. if it is not in ‘good repair’ at the start of the tenancy.

7. Permitted Use

Commercial leases will almost always specify a permitted use for the property. The tenant must only use the property as permitted by this clause and they need to ensure the permitted use is suitable for their business. The tenant must also adhere to any planning constraints and relevant covenants that bind the Property.

The terms of any lease can be daunting, particularly for someone without experience in the area. As a result, it is easy to get overwhelmed with information and miss important details that may have a detrimental impact on your business if not properly addressed at an early stage.

If you are considering entering into a new lease and need advice on negotiating its terms, or simply want an expert opinion on an existing agreement, please contact our expert commercial property team on 02920 829100 for an initial consultation.