Common Questions Answered
I’ve agreed terms to start using a commercial property, do I need anything in writing?
Yes! If you have agreed to use someone else’s property for the purposes of your business, it is highly recommended that you enter into a formal lease to record the position. Not only will it record how long you can be there and how much you will pay, a lease will also deal with matters such as who is responsible for repair & maintenance, insurance, statutory obligations etc. Commercial leases can be complex because they have to try and cover every possibility that might arise within the several years term of the lease, so it is not recommended that you try this yourself. Professional advice when agreeing all the lease terms, say from a surveyor, and when documenting that agreement, from a solicitor, is very valuable and can save you thousands in disputes or unexpected expenditure in the long run.
How long a lease should I take?
Leases of commercial premises can range from a few months to many years and the correct length of time for you will depend on a lot of factors. First and foremost you should remember that whatever you want has to be agreed by the landlord and they will likely have a different idea to you, so a compromise may be needed. The shortest term commonly seen is 3 years and the longest around 10-12 years but you can agree anything you want. As a tenant, you ideally want flexibility, i.e. a long enough term to establish your business but a way to get out early if you need to expand, or if things don’t go so well. This is where ‘options to break’ i.e. to get out early, or ‘options to renew’ i.e. to extend the term of the lease, can come into play. An option to renew is normally just a simple option that says you can have the same lease again at the end of the term (usually subject to a rent increase). Options to break can be more involved, as they can be fixed to a particular date, or a set notice period, or have other conditions as appropriate. All of this will form part of the negotiations with your landlord at the outset.
What is Security of Tenure?
Under the Landlord and Tenant Act 1954, business tenants were given security of tenure which means that even when their lease ends, they have the right to stay in the property and continue trading. As one might expect, this is subject to certain conditions and a landlord can object to the tenant’s continued occupation. These statutory grounds cover ‘fault’ ground, e.g. where the tenant has been consistently late with the rent, and ‘non-fault’ grounds such as where the landlord wants the property back for redevelopment. Compensation may be due to the tenant under the non-fault grounds. It is possible for security of tenure to be excluded from a lease at the outset, sometimes known as being ‘outside the Act,’ and there is a process that a landlord must follow to effect this.
Can I end my lease early?
Generally speaking, it is not possible to end a commercial lease early without the landlord’s consent. If the landlord does consent, then a deed of surrender is the best way of documenting the end of the lease. If the lease contains any form of ‘break option’ then this could be exercised but is likely to be subject to conditions so care should be exercised as well. If the landlord does not consent and you have no break option then it will not be possible to end the lease early but you could consider selling / assigning the lease to another tenant.
Can I sell my lease?
Most commercial leases contain provisions allowing for ‘assignment’ of a lease, i.e. giving the tenant the ability, subject to conditions, to sell the lease to a third party, who then becomes the tenant. The landlord has to give consent first and they will often want references from the new tenant and may require a rent deposit or guarantors to be provided. The most common requirement is that the existing tenant has to guarantee that the new tenant will pay the rent and otherwise obey the terms of the lease. This is known as an Authorised Guarantee Agreement [AGA].
For more information or advice on any of the above issues, please contact a member of our Commercial team.
Eastbourne 01323 727321
Hailsham 01323 841481
Polegate 01323 487051