What is a Commercial Lease?
A commercial lease is a legally binding contract between a tenant and a landlord regarding the occupation of commercial property to be used by the tenant to run a business enterprise, for example a shop or pub.
The parties to a lease:
Tenant/Lessee – being the company/business renting the property.
Landlord/Lessor – being the person or company/business that owns the property.
A commercial lease is a written agreement setting out the rights and responsibilities of each party which will protect them if there is a dispute. It will also include a description of the property, including the address and a description of the premises and its intended use.
The lease states the length, the consideration including the deposit and rent which is usually paid monthly, payment of service charges and rights of forfeiture/termination for each party under the lease. It may also include any subletting or assigning rights and who is responsible for insuring the property and contents.
An initial inspection should be carried out by both parties to agree on the state of the premises at the outset, and then negotiate any work required and who should carry out that work.
Disputes under a commercial lease usually involve unpaid rent and/or service charges but could also be for damage to the property or a possession claim for not vacating the property on time after the lease has concluded or been forfeited or terminated.
Term – the lease can be for a fixed term, a specified number of weeks, months or years, or periodic.
Use – the lease should specify what the premises can be used for and may include opening hours and parking rules. It should require the lessee to insure the building and contents.
Rent – this is the amount payable under the lease and is usually paid on the same day every calendar month.
Service Charges – are payable for maintenance works carried out by the lessor throughout the lease and the works and costs should be specified in the lease.
Repairs – the lease should specify who is responsible for repairs – this is usually the lessee but may be the lessor in certain circumstances.
Utilities – under the lease the utilities will usually be paid by the lessee.
Termination – if the lease has not reached its conclusion, the landlord can only end it if the tenant has failed to pay the rent or has not fulfilled any other part of its obligations. The lessor should either negotiate with the lessee for them to pay the rent or remedy the issue. Alternatively, they could serve a Notice to Quit on the lessee giving them a specified amount of time to vacate the property. The time to vacate upon a notice being served should be included in the lease terms. If it has not been included, then the notice period given is 40 days or more if the lease term is over 4 months and 28 days’ notice if the lease term is less than 4 months. If the tenant does not vacate then the lessor can commence possession proceedings in the County Court.
Getting the right advice
Before entering into a commercial lease, the parties should ensure that their interests are protected, and the terms and premises serve their needs. It is important to seek legal advice from an experienced commercial solicitor from the outset to avoid potential disputes and costly pitfalls.
We can assist with all aspects of commercial leasing including:
- drafting and reviewing commercial leases
- negotiating the terms of the lease (including rent, transfer options, duration, exit and renewal options)
- subletting of premises
- insurance advice and assistance in identifying the most suitable business insurance opportunities
- leasing dispute resolution