Commercial Leases (England and Wales)

Drafting a commercial Lease  - The Landlord's perspective
The perspective of the tenant
The Statutory right to renew the lease

Drafting a commercial lease - The Landlord's perspective.

If we are acting for you as a landlord, the lease almost certainly represents the creation of an investment.  Our central objective, as landlord's lawyers, is to draft a lease which will sustain the property as an investment for as long as is contemplated.  To a certain extent, the creation of the lease is a "one strike" opportunity to get right the structure of the lease.  What goes into (or does not go into) the lease can affect the value of the investment for the long term.  As solicitors, it is our job to ensure that as the client landlord, you have asked yourself all the right questions (having regard to the law) before we execute your instructions. 

The perspective of the tenant

If you instruct a solicitor as a prospective tenant, the chances are that you have already set your heart on the premises.  You will be focused on getting your business up and running.  The ins and outs of a commercial lease will not necessarily be at the forefront of your mind.  it is to be hoped that you will already have "done your homework" when you give a lawyer instructions.  You may already have negotiated with a landlord who has secured a deal with you by being accommodating and understanding and perhaps even offering you concessions to get you started. 

Terms of the lease can still be negotiated after solicitors are instructed but it is far better to complete negotiations of all the fundemental terms before instructing a solicitor when your bargaining power is at its height.  To achieve the greatest possible success, you will need to do two things

(1) Acquire some grounding knowledge of how commercial leases work and
(2) Do some research into local economic conditions and get a flavour of how likely the Landlord is going to be able to find another tenant like you.

We have provided information about leases as a separate topic which you can access by clicking here. A typical commercial lease will have the following ingredients

A description of the property (which usually includes a reference to a map or a plan)
Rights which benefit the property (e.g. right of way, right of parking space, right of storage, right of services etc)
The term of the lease
the amount of the rent
Whether there is a rent deposit
A rent review clause (if the lease is not a short lease) and the criteria for assessing market rent
Who is responsible for repair of the premises
Who is responsible for insurance (usually the landlord)
Provision for the landlord to collect contribution towards services (service charges)
A clause restricting the use of the premises
Provisions to restrict alterations without consent
Provisions to restrict alienation without consent
Forfeiture provisions

There are two crucial areas where you as a tenant might be able to negotiate and achieve a result.  One is in relation to the term of the lease.  You should always consider the worst possible scenario for your business.  What if it is best that you terminate the lease before the end of the term.  There could be any number of reasons for this.  If your business is new, your risk of failure will be high.  Even with a mature business, the local conditions may favour moving or your business may have outgrown the size of the premises.  In doing this, you may be able to assign the lease but that can prove difficult.  Whatever the circumstances, you may feel that the lease is too long.  Consider negotiating a shorter term in the lease or a "break clause".  A break clause is a clause which allows termination of the lease prematurely at certain points in the lease.  Another alternative would be to have an option to be granted a new the lease at the end of a short term. 

The second crucial area where a Tenant might obtain a concession is in relation to the rent.  The rent chargeable in the lease may be higher than is the market value.  There may be scope for negotiating a reduction in the rent or asking the Landlord for a rent free period under the lease. Your research into other premises prior to negotiation will be crucial here.

Your business may also require you to have improvements carried out to the premises.  Work out what needs to be carried out then find out what improvements the landlord may be prepared to pay the cost of.  If the improvements relate to the building, the landlord may consider that this is the best way forward to nurture his investment.

The premises might initially be too large for your needs.  Consider the possibility of sub-letting.  You may at the outset be able to negotiate with the landlord to sublet the premises without seeking his permission.

The Statutory Right to renew the lease

Under the Landlord and Tenant Act 1954 Part II, every tenant has the right, subject to compliance with notice provisions, to have granted to him a new lease when the term ends on substantially the same terms as the expired lease.  The right is subject to the Landlord's right to object in certain exceptional circumstances and an appropriate increase in the rent.  These provisions can be contracted out by agreement.  The contracting out provision should appear as a term in the lease and appropriate prescribed notices should be served on the tenant before the Lease is entered into.  It is no longer necessary to register the contracting out provision in the Courts.

Contracting out the Tenant's right to renew a lease may be important to a landlord who has some future purpose for the premises.  If you are a tenant, you need to consider consequences of having to move premises at the end of the term, if the statutory provisions are excluded.

Related topics

Leases