Being a landlord of commercial property can be a difficult job, and being a tenant can be stressful. There are lots of issues you need to be aware of, to ensure a trouble free landlord and tenant relationship.
The commercial letting market can be challenging. In 2023, there were 25,158 registered company insolvencies. The number of company insolvencies was the highest annual number since 1993 (gov.co.uk – company insolvency statistics – Oct to Dec 2023). In the current financial climate, more so than ever, it will assist to have solid legal advice in advance of committing to any lease agreement. That is where BEST Solicitors can assist you, as a landlord OR a tenant…

The Legal Background

The first step in dealing with commercial tenancies is understanding the legislation that governs commercial leases. The Landlord and Tenant Act 1954 is the primary legislation that regulates the relationship between landlords and commercial tenants in England and Wales. By default, this Act provides protection (known as “security of tenure”) to business tenants by granting them the right to renew their lease at the end of the term, subject to certain exceptions. The main exceptions where security of tenure can be abandoned are
a) Non payment of rent;
b) The landlord needs the premises back to occupy themselves; and
c) The landlord needs the premises back as a wider scheme of development.
A few other key Acts that govern commercial leases are
– the Landlord and Tenant Act 1927 which provides guidance with regards to tenant improvements and assignments
– the Law of Property Act 1925 which governs areas such as forfeiture (when a landlord exercises their right to regain peaceable possession against the wishes of the tenant)
– the Landlord and Tenant (Covenants) Act 1995 which makes provision for tenants to be bound by ongoing covenants (rules about what you can and cannot do, and continuing obligations) that remain applicable, even after a tenant gives up possession of a property, and assigns a lease to a new tenant
These are all important pieces of legislation to consider, when dealing with commercial property, as either landlord or tenant.

Lease Agreement

The lease agreement is a legally binding contract between the landlord and the tenant. It outlines the terms and conditions of the lease, including the duration of the lease, the rent payable, and the responsibilities of both parties. Once a lease is completed, both parties are bound by all the terms therein, for the duration of the lease.
When setting up a lease agreement, it is important to ensure that the terms are clear and unambiguous. The lease should clearly state the rent and other charges due, the length of the lease, the procedure for rent reviews, and the rights and obligations of both parties.
It is highly advisable to seek legal advice when drafting a lease agreement as landlord, or signing up to a lease as tenant, to ensure both parties are aware of their obligations and rights.
What a tenant should be responsible for
A commercial lease is often referred to as an FRI lease (full repairing and insuring). This means that a tenant is responsible for all repairs and the cost of insurance, during the term of the lease.
Tenants will, also be responsible for rent payments, contributing to the cost of buildings insurance and payments for either service charge or common items costs.
A tenant will also have to comply with all the tenant covenants (rules about what you can and cannot do) contained in the lease, which can often be very extensive. You need to ensure that the covenants do not contradict, hinder or prohibit any of your intended uses of the property.
It may seem unusual to consider your obligations at the end of the lease, before you have even signed up, as tenant, but responsibilities at the end of the lease can be quite onerous, and have to be considered before the lease is signed. This is because if there are repairs required at the property at the end of the lease, you would be fully responsible to carry out those repairs. Prior to signing the lease, you have opportunity to negotiate to limit repair responsibilities by way of reference to a Schedule of Condition. This Schedule (usually enclosing photographs of the property) can be referred to in the lease, and your repair obligations limited by not having to put the property back in any better condition than the start date of the lease, by reference to the Schedule.
What a landlord should be responsible for
A landlord usually arranges the buildings insurance, but obtains payment from the tenant(s).
If the lease is a lease of part of a building (and not the whole building) a landlord is usually responsible for maintaining the exterior of the building, and any common parts. However, the cost of that maintenance is recouped from the tenant(s) by way of service charge, or a common items contribution obligation in the lease.
A landlord usually promises to allow quiet enjoyment to a tenant, on the proviso that the tenant has complied with all their covenants in the lease.
Dealing with Disputes
Disputes between landlords and commercial tenants can arise for a variety of reasons, such as rent arrears, breach of lease terms, disagreements over repairs and maintenance or the condition of the property at the end of the lease.
The process for resolving disputes will depend on the nature of the dispute. For instance, if the dispute relates to rent arrears, you may be able to take action to recover the arrears or terminate the lease. If the dispute relates to a breach of lease terms, you may need to apply to the court for a declaration or injunction. Again, pragmatic drafting of the lease will ensure that as Landlord or tenant, you will each have clarity of what your respective obligations and rights are.

Conclusion

Dealing with commercial tenancies as either landlord or tenant, requires a good understanding of the relevant legislation, a clear understanding of your needs and requirements and careful drafting of the lease agreement to put those needs and requirements into the lease, which your solicitors can assist and guide you through.
What can BEST do for you?
Our Elizabeth Harris states “One of the most challenging aspects of landlord and tenant work, is balancing the often competing needs of the landlord and tenant. This is where detailed instructions from your client are imperative. I need to understand the exact detail of my clients business needs, and what issues could be “deal breakers” or not.”
Working with us will assist you to build positive landlord and tenant relationships, and attention to detail in the drafting, will assist to safeguard (wherever possible) against the likelihood of disputes arising. We help landlords protect and preserve the value of their investment and rental income. We help tenants acquire a lease agreement that meets their needs and ensure they are aware of all their obligations before entering into the commitment to the lease.
Give us a call…