Commercial leases are complex lengthy documents with even short term
lets running to multiple pages. So, what
are the important issues?
This depends
on whether you are a landlord or tenant however, remember you both want to
create the lease and make it work. There
is undoubted pressure on landlords due to the current economic climate and the
surplus of empty properties so it is increasingly important for a lease to be
attractive to both parties.
Short term tenancies can be desirable. Landlords want their properties occupied so a
short lease ensures, at least for a while, that the property is making money
not costing money and where the tenant is a start-up business there is opportunity
to build a business in a particular location but without risky long term
financial commitment. This may also
appeal to an older business where, for example, a new office is being
established.
Whether a long or short term has been agreed, a break clause can be
a useful negotiating tool. A break
clause in a commercial lease allows it to be ended before expiry of the
term. These clauses are usually subject
to service of a notice and conditions, e.g.: the rent being paid up to date
although it is becoming increasingly common for break clauses to be subject only to the service of a notice. Break clauses can be particularly important
to a start-up where the viability and success of the business is untested. A break clause allows a tenant (whether a
start-up or established business) to terminate the lease should difficulties
arise.
Rent under commercial leases has traditionally been payable on a
quarterly basis. Does it suit both
parties better for rent to be payable monthly allowing a landlord more
frequent, regular income and a tenant more manageable rent demands? Would it work for the rent to be paid like
Council Tax, i.e.: over 10 months of the year?
This leaves the tenant with, in effect, two ‘rent free’ months in
January and February, which are often financially difficult times of the
year.
The economic down turn and the ending of empty property rate relief
presents tenants with greater opportunities to negotiate rent free periods at
the outset of the lease or to be used as arguments against rent increases where
a review is due. To offset requests for
rent free periods, a landlord may be prepared to tidy up a property before a new
lease starts as it may be a cheaper alternative.
Landlords should aim to keep their tenants and their properties
occupied so if a business is struggling but still viable then flexibility is
key. Would variation of certain clauses
in the lease ease pressure on the tenant and keep the property occupied and
generating income?
Repairing obligations are also important. A landlord will usually want a tenant to be
responsible for all repairs but the tenant, particularly in a short let, will
usually want its responsibility for repairs to be restricted or for internal
repairs only.
If you need any help or assistance in this area then contact the
Commercial team based in our Lancaster Office on 01524 386500 or email info@bsglaw.co.uk
