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Key Terms to be on the look out for in Commercial Leases - Part One
As we approach the next quarter date, Landlords and Tenants across the country are looking to enter into new commercial leases. The key requirements of Landlords and Tenants in such lease negotiations tend to vary, with Landlord and Tenants often finding themselves at odds.
In this series we will cover a few key areas which we advise Landlords and Tenants to consider.
One of the first questions which Tenants need to answer is: what is the duration of the Lease they will be taking on?
A consideration will be whether your Lease is within the protection given by sections 24-28 of the Landlord and Tenant Act 1954, and therefore if the Tenant will have security of tenure or a statutory right to renew the Lease at the end of the Term. Most business tenancies are drafted so they are outside the 1954 Act meaning they do not have this right for security of tenure. This means that most leases do not give the Tenant the statutory right to renew at the end of the Term. When negotiating Lease terms, Landlords often want to exclude this right, so that they have certainty around when the term will end.
The Tenant may be unsure whether they wish to be bound by the conditions of the Lease for the entire Term, especially if they are a new business. In such cases, we recommend that Tenants negotiate a break clause within their Leases. A break clause acts as a mechanism to end the Tenant’s obligations/rights under the Lease during the Term. There are several different ways which break clauses can be drafted, such as whether the break would be exercised by the Landlord of the Tenant, and at what point of the Term this could be used.
It is also important for Tenants when taking on new business premises to keep in mind that for some Leases, Stamp Duty Land Tax (‘SDLT’) may be payable. This is dependant on the Term, Annual Rent and if any Premium is to be paid.
Both the Landlord and Tenant will need to be aware of what the demised premises covered by the Lease will be. Are you leasing the whole Building, or just part of a unit? The area needs to be clearly defined so the Tenant will know which area they have exclusive possession over. The area that will be leased will also impact what kind of repairing obligations or Service Charge provisions the Tenant will need to adhere to (as discussed below). To ensure all parties have a clear understanding of the demised premises, it is best practice to annex plans of the Property onto the Lease.
The Tenant will also need to ensure that the Property and Lease allows them to use the Property as they are planning to. The Permitted Use should be explicitly stated in the Lease’s definitions, making reference to The Town and Country Planning (Use Classes) Order 1987 (as amended) to the specified Use Class required. As part of the due diligence process, the Landlord will be required to confirm the current registered Use Class, and potentially provide evidence for this if necessary. It is available that the Landlord makes the potential Tenant aware as soon as they are able if a change of use application needs to be made to the Local Planning Authority.
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 firstname.lastname@example.org.