Commercial Leases

We deal with various matters involving commercial leases, such as the grant of new leases and the purchase of existing leases. We have experience dealing with shops and offices, cafeterias, restaurants and takeaways and industrial buildings such as warehouses.

Before you instruct us to handle your commercial lease matter you will need to agree the basic terms (sometimes known as ‘Heads of Terms’) with the other party or parties involved in the transaction. Please refer to our section ‘What should I consider when agreeing the basic terms of a commercial lease’ below.

How can we help you?

A commercial lease is a legal agreement by which money is paid from a tenant to a Landlord in order to use land or a building for a business use for an agreed period of time. Often, a lease will be granted for a particular floor in a building but it could be for the whole building.

Grant

This is where a Landlord is granting a new lease to a tenant.

Acquisition

This is where a tenant is acquiring a new lease from a landlord.

Purchase / Assignment

This is where someone wishes to purchase the remaining term of an existing lease from the current tenant of that lease

Disposal

This is where the tenant of an existing lease wishes to:

  • Sell/transfer their lease to someone else; or
  • Surrender the lease back to the landlord; or
  • Exercise a break clause in the lease.

We act for landlords whose tenants have approached them with a view to disposing of their leases, for tenants who wish to grant an underlease and for tenants who wish to renew their leases.

You should consider the following points when negotiating the basic terms of a commercial lease. These should ideally be negotiated and agreed before you instruct us:

Alterations

If any substantial alterations or fit out works are required to the property you will need to obtain the Landlord’s consent to such works. A ‘licence for alterations’ will need to be drafted. It is usual for the tenant to pay the landlord’s legal fees for preparing this document.

Annual Rent

VAT may be payable on the annual rent. If this is the case, and the tenant is registered for VAT the tenant may be able to recover some or all of the VAT paid on the rent. Annual rent can also be subject to review over a period of years.

Break Clauses

Break clauses allow a party to terminate a lease early, for example, at the end of the fifth year of a ten year lease. They can be exercisable by a landlord only, by a tenant only or by both the landlord and the tenant. Usually, there will be various conditions that the tenant will need to satisfy in order to take advantage of a break clause.

Guarantors

A tenant may be required by the landlord to provide a guarantor to guarantee the rental payments and other obligations under the lease. A landlord will often require a tenant to pay a Rent Deposit in addition to or as an alternative to a guarantor.

Landlord & Tenant Act 1954

If a lease is granted “within the security provisions of” or “inside” the Landlord & Tenant Act 1954 this means that the tenant will have an automatic legal right to a new lease at the end of the lease term unless the property is required back for the Landlord’s occupation or the Landlord can rely upon one of a number of other grounds set out in the Act. A specific procedure must be followed. If the lease is “outside the security provisions” or “contracted out of” the Landlord & Tenant Act 1954 the tenant will have no automatic right to a new lease at the end of the lease term.

Legal fees

Both parties should attempt to reach an agreement as to responsibility for legal fees. It may be agreed that each party pays their own legal fees, or alternatively that the tenant pays the fees of the landlord.

Permitted Use

This is the use agreed by the landlord and we will check that the property has the correct planning permission for your proposed use. The permitted use will be investigated when we carry out searches of the property.

Rent Deposits

A tenant will often be required to pay a rent deposit to the Landlord as security for the breach of any of the obligations under the lease during the lease term. If the tenant falls behind on any payments required under the lease or breaches any other lease terms the landlord can deduct money from the rent deposit to recover the loss. The tenant will be required to top up the deposit to the original amount within a certain period of time. The landlord will hold the rent deposit until the tenant moves out of the property.

Rent Free Periods

If the tenant wants to carry out fitting out works to the property when taking on a lease, it is often possible to negotiate a time frame such as at the start of the lease during which the tenant will not have to pay rent, especially if the tenant is unable to operate the business during this time.

Rent Reviews

Most commercial leases contain rent reviews at certain intervals, for example, every fifth year. Commonly, the rent will be increased in line with the rent that would be payable for the property on the open market at the time of the review. Usually, it will be ‘upwards only’. However, in the event of a downturn in the market, an ‘upwards only’ review would mean that the rent is not decreased at the review date.

Term

The ‘term’ of a lease means the length of the lease, for example, 5 or 10 years. It is important for both a landlord and tenant to consider whether the lease is to be granted within the provisions of the Landlord & Tenant Act 1954.

The steps involved will depend on the nature of the transaction but broadly fall into these stages:

Investigating The Title

(when acting for the new tenant or assignee)

To check that the landlord has the right to grant a lease of the property, and to highlight any other interests that may affect the acquisition

Obtaining Searches of the Property

(when acting for the new tenant or assignee)

To reveal any potential legal risks affecting the property

Raising Enquiries for Tenants or Assignees or Responding to Enquiries for Landlords or Assignors

The landlord or assignor must disclose detailed information about the practicalities of the property

Negotiating the Terms of the Lease and Any Other Documentation

Commercial leases will contain provisions relating, for example, to making alterations to the property your repairing obligations. We will negotiate the terms as far as possible to best protect your interests. There may be other documents involved such as a Licence for Alterations (under which the landlord grants consent to the tenant’s proposed works to the property) and a Rent Deposit Deed. On an assignment of a lease we will usually need to negotiate a ‘Licence to Assign’ under which the landlord grants formal consent to the assignment.

Exchange of Contracts

The parties become legally bound to grant the lease, assign the lease or take on the lease (depending on the transaction) – most lease transactions do not contain this stage as the transaction moves straight to completion.

Completion

This is the point at which the transaction is formally completed, ie. the date on which the lease starts and the tenant has access to the property.

Registration at the Land Registry for Tenants or Assignees

Where a lease has been granted for seven years or more, it has to be registered at the Land Registry. We will deal with registration on your behalf.

The cost will depend upon your specific requirements, the services needed and the complexity of the transaction. However, we aim to be transparent with our fees throughout the process. When we provide a quotation for you, we try to provide as much information as possible, so that you have a clear understanding on the total cost of the transaction from the start.

For a free and bespoke Commercial Property quote, please contact us:

+44 (0)20 8852 4433
enquiries@beverleymorris.co.uk

If calling or emailing, please provide us with the following information:

  1. Property address
  2. Annual rent
  3. Length of lease
  4. What you will use the property for (e.g. café, offices) and the current use of the property
  5. If known, whether there will be a rent deposit and/or any proposed alterations to the property.

1. We would always advise that a survey of the property is carried out.

2. If you are a tenant proposing to carry out works to the property for which planning permission may be required, or if you propose to change the use of the property, you will need to cover the costs payable to the local planning authority and the fees of any architect or planning firm if you use their services.

3. Stamp Duty Land Tax may be payable depending on any premium paid for the lease and the annual rent.

3. A tenant assigning a commercial lease will need to cover:

  • The landlord’s costs for granting consent to the assignment.
  • The cost of an energy performance certificate.
  • The cost of an asbestos report – this is a legal obligation.
  • The cost of a fire risk assessment – this is a legal obligation.

4. A tenant purchasing an existing lease may be asked to cover the current tenant and/or the landlord’s costs.

Stamp Duty Land Tax (SDLT) is payable to the Government if you buy a property or take a lease of land over a certain price in England, Wales and Northern Ireland. The amount you will need to pay depends on the price you pay for the property and in the case of a lease, how much rent you are paying and whether VAT is payable on the rent. The timing of any rent reviews might also affect the amount payable. In certain cases, no Stamp Duty Land Tax is payable.

Please see the link below to the SDLT calculator which will provide information as to the likely amount of SDLT payable on your transaction. We would be pleased to provide you with any further assistance you may require in this respect.

www.stampdutycalculator.org.uk

The length of a transaction differs from case to case. We do not want to raise false expectations by promising a precise time frame at the outset, as it is impossible to predict any issues that may arise. That said, we aim to deal with your matter as efficiently as possible and we will always bear in mind any particular time frame to which you may want to work.

We pride ourselves on our honesty, and will always let you know if we think your goals may not be achievable.

If the tenant of a new commercial lease, a lease granted on or after 1st January 1996, wishes to assign the lease to a third party, it is likely that the lease will contain a clause requiring the tenant to enter into an “Authorised Guarantee Agreement”.

The effect is that the outgoing tenant has to guarantee that the incoming tenant will pay the rent and perform the tenant’s obligations in the lease. For leases granted before 1st January 1996 the incoming tenant will automatically take on such liability on an assignment of the lease.

We can prepare documentation for the transfer of an existing business which is to be purchased at the same time as the assignment of a lease. The incoming tenant and outgoing tenant will need to decide whether the purchase of the business is structured as an ‘asset purchase’ or as a ‘share purchase’.

See our section ‘Buying or Selling a Business’ for more information.

Buying or Selling a Business

This depends on the lease. Permission is likely to be subject to the Landlord’s consent and the tenant will need to cover the Landlord’s legal fees for granting formal consent to underlet. There are likely to be restrictions on any underlease.

For example, a lease may provide that any rent payable under the underlease can be no less than the market rent payable for the property. The Landlord might also request further details about the undertenant and require bank, trade and professional references to be provided.

If you have a query about a commercial lease that is not shown on this page we may still be able to help. Please call or email us to discuss your query further.
+44 (0)20 8852 4433
enquiries@beverleymorris.co.uk

Commercial Leases Team

Richard Hutson

Head of Commercial Property
Lewisham Office
Email Richard

Louise Bate

Lewisham Office
Email Louise

Martin Hopkins

Lewisham Office
Email Martin

Angela Stanton

Head of Conveyancing
Blackheath Office
Email Angela