Commercial Property Leases

The successful operation of all business invariably relies on occupation of suitable commercial property. Whether your business operates a distribution network requiring appropriate warehousing and office space, or provides a range of retail offerings needing high-street shop locations, it is crucial that both the landlord and tenant clearly understand (and abide by) the legal arrangements between the parties. It is important to ensure that any occupation of commercial property is controlled and governed by reference to a written lease, so that all parties know exactly what is expected of them and provides protection for the manner in which those obligations are performed.

Commercial Property Leases

A commercial lease is a legal contract between a landlord and a tenant, which contains all of the terms and conditions that have been agreed between the parties. You may have heard of leases referred to as “business tenancies”, which is another term for the agreement.

A landlord and tenant will initially agree the terms upon which a commercial property is to be occupied. Sometimes there is an agent involved, but other times the landlord and tenant might talk directly. Often, an initial and non-legally-binding document known as a “Heads of Terms” is produced, to help both parties’ solicitors agree the draft lease. The parties will agree on the commercial terms, such as the extent of property to be rented, the length of occupation, the rent payable, when (if at all) the rent can be reviewed and whether or not the landlord and/or tenant can end the lease early.

Once the initial terms are agreed, the landlord will instruct their solicitor to produce the draft lease. The landlord will also ask the tenant to confirm which solicitor the tenant will be using, so that the draft lease can be sent to the tenant’s solicitor, along with copies of the title deeds of the landlord’s property, proving its ownership.

The two sets of solicitors will then conduct a short period of negotiations in order that the terms and conditions of the lease can be checked to make sure that they accurately reflect what has been agreed between the parties. Once the lease is ready, the landlord and the tenant will be invited to sign counterparts and the lease will be completed.

Lease Agreements

There are a number of key agreements that must be recorded in a lease. Some of the main points for discussion and negotiation between a landlord and a tenant are:

  • What is the detailed description of the extent of property being rented?
  • How long will the tenant occupy the property – and will the tenant be allowed to exit early?
  • How much rent will be payable and will this increase during the term of the lease?
  • Will the tenant be allowed to carry out any alterations or additions to the property?
  • Will the tenant be allowed to assign or sublet[1] the lease and if so, how?
  • What can the tenant do and what is the tenant not allowed to do at the property?
  • Will the tenant have a contractual, legal right to automatic renewal on expiry of the lease?

There are a vast number of considerations for landlord and tenants that will differ in importance and/or relevance, depending on whose viewpoint from which the lease is being granted. Our commercial property specialists have wide and established experience in acting for both landlords and tenants in respect of the grant of leases and will be able to clearly advise you on this (and a number of other very important considerations), based on a sound understanding of your business and what is required from the occupancy.

Lease Ancillary Documents

Depending on the nature and complexity of your transaction, there are a variety of additional documents that may be required alongside the grant of a lease, but one can usually expect to see:

an agreement for lease – the landlord and the tenant may wish to legally agree that a lease will be granted upon the occurrence of a particular event – for example, grant of planning permission for the tenant’s change of use at the property or legal completion of a surrender of the tenant’s existing lease elsewhere. The agreement for lease is a separate, legal contract that makes sure the lease will be granted within a certain period of time of the main defined event happening;

a licence for alterations – whether the tenant wishes to carry out minor decoration works to a property, or carry out a full fit out or refurbishment, the lease will contain certain terms and conditions controlling the manner in which those works are to be carried out. The licence for alterations is a separate, additional contractual document which outlined the tenant’s legal responsibilities in respect of the work;

a rent deposit deed (optional) – this document will be required where the landlord requires the tenant to lodge a deposit and shall be the legal agreement to govern how the deposit is administered and managed;

lender consent – where the landlord’s property out of which the lease is to be granted is mortgaged to a lender, it will often be necessary to ask the permission of the lender for the lease to be granted. Bank and lenders will often have a set application process for provision of consent that will be dealt with by the solicitors.

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