If you are looking to take a commercial lease or if you are looking to buy a commercial freehold, then negotiating the sale contract or the terms of the lease is an important part of the process. But there are other aspects of a commercial property lease that you should know about before you sign.

21 Nov What you need to know about your commercial property lease

Posted at 00:00h in Commercial Property Law by

What do you need to know before you sign a commercial property lease?

If you are looking to take a commercial property lease or if you are looking to buy a commercial freehold, then negotiating the sale contract or the terms of the lease is an important part of the process. But there are other aspects of a commercial property lease that you should know about before you sign.

Andrew Dongworth, company and commercial solicitor at HRJ Foreman Laws Solicitors, Welwyn Garden City office talks about three important areas to consider.

Commercial property searches

A solicitor will conduct the necessary searches for your commercial property, and check that it can be used for your business. The searches will also uncover any known environmental hazards or issues in or around the property.

When you work with one of the commercial property experts at HRJ Foreman Laws Solicitors, we will make all the necessary enquiries with the seller or the landlord.  We will then review those replies and make sure that there are no other issues.  For example, the property as advertised did not mention that there was service charge that’s payable each year. Sometimes there will be a requirement to contribute to the cost of the repairs of an estate road or an access road.

The Landlord and Tenant Act

The ability for you to renew your lease depends on whether it has the protection of a piece of legislation called The Landlord and Tenant Act from 1954.

If you do have the protection of the Act, you can ask the Landlord for a renewal.  The Landlord cannot ask you to leave at the end of the term.  You can stay in occupation, what’s known as ‘holding over’ under your lease. Then you will continue the same terms until either the Landlord or the Tenant enters into a new lease or terminates the ‘holding over’ lease.  Either option can be done by negotiation or by the Landlord or Tenant. Both can serve notice on the other to indicate that they would or wouldn’t like to offer a new lease.

From a tenant’s perspective, you would serve notice setting out the terms that you were willing to pay and if you can’t then agree that with the Landlord, there is the ability for the matter to go to court and the court will determine what is a fair renewal lease and what its terms will be.

Opting out of the Landlord and Tenant Act

If you contract out of the Landlord and Tenant Act, you will not be protected by it.  The Landlord is entitled to ask you to vacate the property at the end of the lease term.   If you are in this situation, and want to remain in the property, we recommend talking to us a few months prior to the end of the lease.  We can then start having discussions with your Landlord to agree the terms of a new lease.  It would then begin immediately on the conclusion of the existing lease. If you are not able to agree terms, then there is some time to be able to look around for alternative premises.  We can review your new lease and we can advise you accordingly.

Transferring your lease with a business or asset sale

If you are selling your business, your buyer will be taking on the goodwill, fixtures, fittings, assets and the lease.   The transfer of the lease to the buyer, is known as an ‘Assignment’ of the remainder of the lease.  To make this happen, we need to go back to the contents of your existing lease.  In most instances, you can transfer or assign the remainder of your lease to a buyer.  However, you do need to get your Landlord’s consent before you do that.

The Landlord may want to vet the new tenant’s financial status and ensure that they can fulfil their obligations under the lease. They may ask for references and copies of accounts from your potential buyer.  If happy to proceed, the Landlord will then instruct a solicitor to provide a formal ‘Licence to Assign’. The ‘Licence to Assign’ gives permission to you, as the tenant, to transfer the remainder of your Lease. It may also contain conditions. You could be asked to guarantee the obligations of your incoming buyers.  This makes it a more complicated process than simply transferring the Lease and professional legal advice is recommended.

For more information about commercial leases contact our Commercial Property Legal Team today.

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