Claire Tofts, Senior Associate

Many people have experienced being a tenant of a house or flat under a short term residential tenancy. However if you want to rent commercial premises is it different? What are the key terms?

• Extent of the premises
  It is important to be clear about the extent of the premises. There is usually a plan annexed to the lease and signed by the landlord and the tenant. If the premises are a part of a building then a detailed definition sets out whether or not features such as floorboards, ceilings, walls, window frames and doors are part of the premises. Things which are part of the premises will be the tenant’s responsibility.

• Rights granted and reserved
  The lease will set out any rights which the tenant needs to be able to use things outside of the premises, for example access routes, car parking or bin store. The landlord may also need to retain access to the premises, for example to read utility meters or to carry out works to other premises.

• Lease term
  The length of a commercial lease is fixed, rather than having an initial fixed period and then rolling on until one party gives notice. They are usually granted for a period of several years as a minimum and often for five or ten years or more. Sometimes a ‘break clause’ is agreed where one or both parties can choose to exit the lease early at particular points in time, and on certain conditions.

• Security of tenure
  A commercial lease is either a secure business tenancy or ‘contracted out’. A secure business tenancy will give the tenant a right to renew the lease on very similar terms and the landlord only has limited statutory grounds for refusing. A contracted out tenancy will come to an end at the end of the lease term. Then both parties can choose whether or not to enter into a new lease and on what terms.

• Rent
  Rent is usually set at a starting rate and then reviewed at set intervals, but on the proviso that the rent can never reduce. However the Government has just launched proposals to restrict the use of upwards-only rent reviews in commercial leases, so this is an issue to keep an eye on in the coming months. The reviewed rent may be the then open market rent at perhaps three yearly or five yearly intervals, or the rent may be index linked on an annual or less frequent basis.

• Rent deposit or personal guarantee
  A landlord may require a rent deposit or personal guarantees where the tenant is a limited company without a significant trading history, or if they are concerned about the financial standing of individuals as tenants.

• Other costs and payments
  The tenant will usually pay all outgoings of any kind relating to the premises. This will include business rates, utilities and the landlord’s buildings insurance premium. Where the lease is of part of a building or estate there is often a service charge payable to the landlord. This is a proportion of the costs which the landlord incurs for repair and maintenance of the building or estate, as well as other shared costs.

• Repair
  The tenant must usually put and keep the premises in good and substantial repair and condition. A survey should be carried out to find out whether there are any structural or other defects which the tenant could be inheriting. If there are concerns about the condition of the premises then a tenant would want to have their responsibilities limited to an agreed photographic schedule of condition.

• Alterations
  The tenant would often be able to make non-structural alterations to the premises, subject to the landlord’s prior consent (acting reasonably). The tenant would usually be required to reinstate the premises before the end of the lease term, unless the landlord wishes to keep the alterations.

• Assignment and underletting
  Assigning the lease (transferring it to someone else) or subletting the premises is often allowed. This would be subject to the landlord’s consent (acting reasonably), detailed conditions, and the tenant guaranteeing the new tenant.

• Permitted use
  The tenant will be restricted to using the premises for particular purposes. There may also be restrictions on activities carried out at the premises.

• Compliance with laws
  The tenant will need to comply with all laws relating to the premises at their own cost. These would include planning and building regulations, fire regulations, asbestos regulations and many others.

• Registration and Stamp Duty Land Tax
  Leases of over seven years duration need to be registered at the Land Registry. Stamp Duty Land Tax may be payable on the grant of a commercial lease depending on the level of rent and the length of the lease term.

Before entering into a commercial lease it is important to take detailed advice and to carry out searches and enquiries. We have a number of specialist solicitors who can guide you through this process, get in touch to see how we can help.