Leasehold law is complex and well regulated. Whether you are a landlord or a tenant, having a clear vision of your commercial objectives and getting the right lease and agreements in place first time will save you time and money.
For landlords, commercial property is a major investment with potentially high returns and risks. For tenants, the main priority is not being tied into a lease that is unreasonable and inflexible. A poor lease can mean the difference between a successful business and one that struggles.
Every lease is different and we work closely with our clients to make sure we understand their expectations, priorities and timescales, negotiating a lease that will meet those requirements.
We work with both commercial landlords and commercial tenants and we therefore understand both sides of the process and the common pitfalls that can be encountered. Our clients come from a wide variety of sectors, including retail, education, charities, leisure and hospitality, with property portfolios ranging from multi-million pound retail units to small office units.
Our lawyers can flag potential issues at the beginning of the transaction and advise you of the best way to resolve them. We will guide you every step of the way so you are able to make a fully informed decision.
Setting the length of your lease and the rent payable
The term and rent is first negotiation point. There needs to be a balance between securing the property for a reasonable length of time and flexibility to cope with the changing commercial needs. Small businesses generally want to negotiate shorter leases whilst larger operations may take a longer term view. The level of initial rent and how and when it is reviewed is also a key negotiation point on which we can advise. Tenants are often requiring more certainty over future rental levels and there is a move away from more traditional methods of review to fixed or capped reviews.
What about expenses?
Commercial real estate leases often include extras such as maintenance fees management fees and upkeep for shared facilities (commonly known as service charges). What about utilities? These charges are usually the responsibility of the tenant, but how are they measured? Are they individually metered or apportioned by the square footage?
Who handles maintenance and repair?
While residential leasing often places the burden of maintenance and upkeep on the shoulders of the landlord, commercial leases are different. You should make sure that you consider the extent of your repair liability from the outset.
Heads of terms
Heads of terms are agreed principles usually agreed out by your agent or surveyor before the lawyers are instructed. It is helpful for lawyers for the heads of term to be as detailed as possible to minimise the areas for negotiation and it is often worth involving us at an early stage.
Premiums and reverse premiums
Premiums are lump sum upfront payments made by the tenant at the start on a new lease, followed by monthly or quarterly rent payments agreed by both the landlord and tenant. A reverse premium is a payment made by the landlord to the tenant to take the property back, perhaps because the property is no longer desirable to rent.
Assignments and subletting
A right to assign or sublet provides much needed flexibility to tenants throughout the term of the lease. An assignment of a lease allows a tenant to get out of a lease that is not expired by transferring the lease to somebody else. A sub-letting allows a tenant to find a tenant of their own.
Licences for alterations
Most leases contain restrictions on a tenant’s right to make alterations. A licence for alterations gives the tenant permission to carry out improvements or other works to its premises. A licence to alter is generally needed at the start of a lease when the tenant wants to fit out the property to meet its needs.
Break notices
Many business leases contain a clause granting the right for the landlord or tenant to bring the lease to an end before the expiry of the contractual term. These clauses generally contain strict conditions that have to be complied with. It is important that the lease is as clear as possible as what the party operating the break must do to successfully bring the lease to an end.