Commercial leases can be very lengthy documents. There are several aspects to a commercial lease which, to a tenant taking on a new lease, can seem complicated, tedious, and unnecessary. Some tenants believe that the only obligation they are taking on is the rent and maybe the service charge, but it can be so much more than that.
In this blog, we’ve set out a brief overview of the important matters a tenant should understand and consider before entering into a lease.
1. Deposit, Rent and Service Charge
As a tenant, you must know whether a rent deposit will be required by the landlord. The rent deposit gives the landlord a sum of money which they can utilise if, for example, the tenant fails to pay a rent instalment.
You’ll be entitled to recover your deposit at the end of the term on the basis that the rent has been paid as agreed and the property is being returned in the correct condition.
Tenants are under an obligation to pay the agreed rent sum on the established payment days. Often, commercial rent payment dates are quarterly in advance as opposed to monthly.
Non-payment of rent may result in you receiving a demand to vacate the property. The tenant would then be required to pay any arrears and in some cases substantial costs.
If there is a service charge, the tenant should check which services are provided as part of their rental agreement. They should request details from the landlord so that they’re not faced with any unexpected costs. Service charges can fluctuate and if not capped, be considerably higher than budgeted for.
2. Repair and obligation
As a tenant, it’s your responsibility to ensure that the property is in the standard of repair as stated in the lease. In a lot of cases, this amounts to a ‘good repair and condition’.
This can include bringing the property into a good state of repair even if, at the time the lease is entered into, the property is in a worse condition than good repair.
To avoid potential problems before inhabiting the property, it would be wise to check the property is in good working order, and potentially seek the opinion of a surveyor.
If deficiencies are found, you could request that the landlord brings the property up to a satisfactory standard before the lease commences or request a schedule of condition that states a limit of repair that you must return the property to.
When the lease comes to an end, and you’re vacating the premises, the onus is on you to return the property to the state it was at the beginning of the lease. You’ll have to pay for any repairs necessary to put the property into good condition or the condition as stated in the lease. It is important that the lease clearly states the condition that the landlord is expecting the property to be returned along with a schedule. The repairing obligation is limited only to you, the tenant.
The works that are required at the end of the term of the lease are usually referred to as dilapidations and can be very costly to a tenant if they have not been considered properly at the start of the lease.
3. Alterations
Alterations to the structure of the property will most likely be prohibited. Minor alterations to the property such as fit-out works may be permitted, but they could require the landlord’s consent.
It’s important that the lease is clear on alterations; as a tenant, you must know which alterations will be permitted, which will require the landlord’s consent, and which will be completely prohibited.
It’s usually better to agree on any work you require with the landlord at the same time as agreeing on the lease. At this stage, consent can be given.
4. Break clause
A break clause allows the tenant, landlord or both parties to terminate the lease before the end of the term without any repercussions.
A tenant should know whether a break clause is included in the lease, the agreed date on which the lease can be ended, and the notice required to exercise the break clause.
The tenant should also make sure that there are no conditions within the break clause, that could make it difficult or impossible to validly exercise the clause.
5. Use
It’s important that as the tenant, you check that the lease allows you to use the property for the purpose you want and that it does not prevent you from doing anything which would cause an issue to your anticipated use.
You should also check that the property has the correct planning permission for your purposes.
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If you’re in the process of signing a commercial lease and need some legal support navigating the ins and outs, Gorvins’ team of expert commercial property solicitors will ensure you avoid any costly mistakes and get your new business off to a good start. Call us on 0161 930 5151, email us at enquiries@gorvins.com or use the online contact form.