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Key terms to be on the look out for in Commercial Leases - Part Three

 

In the final part of this series on the key areas that both Landlords and Tenants need to consider during Lease negotiations, we will cover the Obligations and Liabilities to be covered under this Lease as we as assignment.
 

Obligations / Liabilities under the Lease

Before completing on any Lease, all parties need to be aware of who is responsible for both repairing and insuring the Property. These obligations will be dependent on the Term of the Lease and the extent of the demised premises.

The standard position for most Commercial Leases is that the Tenant takes on the Property on a ‘full repairing and insuring basis’ (also known as FRI). This means that the Tenant is responsible for a repairing and maintenance obligations over the demised premises (aside from where insured risks damage the Property) and cover any insurance costs of buildings insurance. The Tenants would be advised to make enquires with the Landlord in relation to proposed insurance costs to ensure they are within their budget.

Where the condition of the Property is not ideal, the Tenant may wish to push for their insurance obligations to be limited to that of a schedule of condition. A schedule of condition is a collection of photos at the point of Completion that accurately reflects the state of the Property. This will insure that the Tenant is not obligated to improve the Property above the standard that they leased it in.
 

Assignment and Subletting 

A consideration that all parties will need to consider is whether the Lease can be assigned or sublet. Tenants will want to be able to assign and sublet the Lease, as it allows them to essentially get rid of the Lease if their circumstances change. The Landlord will likely want to restrict the conditions a Tenant will be able to assign or sublet the demised premises, so that they are able to maintain control over who is within their Property and ensure that rent will continue to be paid.

In order for the Landlord to approve such a disposal of the Lease, there are a number of standard provisions that may be entered into the Lease for the Tenant to abide by, such as:

  • assignment and underletting will only be able to take place for the whole demised premises rather than just a part;
  • the Landlord will need provide consent for the transaction, which is usually only refused in reasonable circumstances; and
  • that the Tenant sign an Authorised Guarantee Agreement (known as an ‘AGA’) upon approving an assignment or under lease. The AGA ensure that if the person who steps in to take over responsibilities under the Lease becomes unable to fulfil their obligations, the Tenant is bound to undertake such responsibilities.

 

About HCB Solicitors

At HCB Solicitors, our team specialises in Commercial Property matters, acting for both Landlords and Tenants on a variety of matters such as leases, licences to assign to sale / purchases. We ensure that we keep the commercial objectives of the client at the forefront of our approach. We are specialist solicitors in Commercial Property who believe in charging fair and manageable legal costs for our clients.  We will always be up front with our client about costs and work required early on.

Please do get in touch for further discussion with one of our specialist Commercial Property solicitors as to how we can assist on 0121 703 2580 or email michellefreeman@hcbgroup.com.

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