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 firstname.lastname@example.org