Business Lease Lawyers Liverpool & North West London

Generally, leases will be granted for a period of time, which is referred to usually as the “Term” or “Contractual Term” which is likely to be for a fixed period – this can range from as little as a few weeks (such as a pop up shop) up to 999 years

A tenant should check the start date and when their fixed term ends, which should be set out clearly in the lease, and also whether either party may terminate it earlier than this date. If there is to be a right to bring the lease to an end earlier, then this will need to be specified in your tenancy agreement, it is often called a “break right”.

If the lease is contracted using the LTA 1954 it finishes at the end of the term, and the property must be vacated if the Landlord is not willing to agree to renew the lease.

If the lease is not contracted out, then following its expiry the lease will continue under a ‘continuation tenancy’ until either the Landlord and the Tenant serve a notice, either indicating a wish to renew the lease or to bring the Lease to an end. If both parties wish to agree a new lease, but are unable to agree on the terms, then the Court can set those terms if necessary.

If a Landlord wishes to bring a lease to an end which is not contracted out, then it can only do so by relying on the limited statutory grounds set out in the LTA 1954. This is a very complicated area and specialist advice will be needed on this.

Rent is likely to be an annual sum that has to be paid in four instalments on ‘rent quarter days’ or could alternatively be payable monthly in 12 instalments.

Depending on the length of the lease and the type of the Property, then the rent payable can increase in different ways:

• Set dates for rent renewal – typically every 3 or 5 years - where the ‘open market rent’ of the Property is assessed and the rent is (usually) increased accordingly. It should be noted that virtually all modern commercial leases will state that the rent can only ever stay the same or increase, it can not go down.
• The Lease may set out that the rent is to be increased by pre-agreed increments each year.
• Tenant may have to pay additional amounts for rent which are linked to their profits from the business. (Turnover rent) – typically found in shopping centre leases.

In addition to rent a tenant may also have to pay VAT on the rent, outgoings such as rates and utilities, and service charges.

When the lease covers a larger building and the Tenant occupies only a part of it, generally it is easier for the landlord to pay the outgoings of the building as a whole and then bill the tenant for an appropriate amount.

The types of costs and charges that the Landlord would look to include in its service charge could be the costs of repair of the building as a whole, cleaning and repairing any common parts, and making any improvements.

The landlord will not know the exact amount of service charges, and so provides an estimate for the tenant to pay in instalments. This is an “on account” service charge, and at the end of the year, the Landlord will calculate what the actual amount spent is. If it turns out that the actual amount paid by the Landlord was more than the estimated amount then the tenant may be asked to pay any remaining balance.

A landlord can also collect a sum to fund major expenses in the future which is somethings known as ‘a sinking fund; contribution.

The area given to the tenant within the lease is known as the “demise”.

A tenant has no rights over the property not included in this area, unless rights are stated within the lease.

This is important as the tenant is only responsible for the demise, they needn’t repair or decorate anything outside of it, unless they cause damage to these areas or if the lease states otherwise.

A tenant also cannot usually make alterations or additions which fall outside this area.

The insurance clause is one of the parts of the Lease which gets a lot of attention, for obvious reasons. It is important for one party to insure the property, as no insurance or double insurance will cause problems for both parties.

If the tenant is responsible for the insurance, they need to check what level of cover is needed, the risks that must be covered and the names of the insured parties.

If the landlord is responsible, the tenant may be expected to pay towards the price of that insurance.

The Lease will set out matters such as what risks the Landlord is obliged to insure against, what is to happen in the event of an insurance claim being made, and what happens in the event that the Property can no longer be used in the event of significant damage to, or even the destruction of, the Property.

Usually, repairing obligations fall onto the tenant, and left unchecked leases can create very onerous obligations.

If the tenant is required by a lease to “put and keep” the property in good repair and condition, then the Tenant must repair and maintain the property into this state, even if the property was in a poor condition at the commencement of the lease.

One of the key ways in which a Tenant can try to limit its repairing obligation, is by way of a Schedule of Condition – but this needs to be reflected in the repairing clause, and the Schedule needs to be agreed and attached to the Lease before it is entered into in order to be effective.

Alterations and Improvements

A lease can impose restrictions on what alterations or improvements a tenant wishes to make. This is to protect the landlord from any alterations which may damage their investment interests in the property.

Such restrictions should be considerate as to the length of the term and the type of property, but typically alterations will require the consent of the Landlord before they can be undertaken.

All modern business leases will usually impose some sort of restriction how a Tenant can “deal” with their lease – sometimes this is called ‘alienation’.

There are 2 ways that a tenant can deal with their lease:

•  Assignment – which is where a tenant sells or transfers their lease to a third party.
• Underletting – where a tenant grants a further lease of the Property to a third party who then takes occupation of the Property.

It is likely that the ability to assign the lease, or grant an underlease, is restricted within a lease and the tenant is likely to need the landlord’s consent in order to do so. Failing to obtain consent will result in the tenant being in breach of their lease and this could result in forfeiture.

A lease is likely to specify what the tenant can ‘use’ the property for. Such restrictions can be positively drafted (i.e., the Tenant can use the property as a retail unit) and negatively drafted (i.e., the Tenant cannot use the property for residential purposes).

The Lease will also usually set out some restriction on what signs the Tenant can put up at the Property, particularly when the Property is in a shopping centre or forms a part of a larger building or estate.