MANY Essex businesses are using or operating from rented premises.  This means they will have agreed to the terms of a commercial lease and will be paying a market rent. 

But what exactly does signing a commercial lease involve? What should businesses in Essex know about a commercial lease?   Nicky Cleightonhills, commercial property solicitor at HRJ Foreman Laws Solicitors in Old Harlow answers some of the most frequently asked questions about leases.

What is a commercial lease?

A commercial lease is a legally binding contract made between the tenant and the landlord.  The lease permits the tenant to use the property for business or commercial activity for an agreed period, in return for rent and often a service charge.  However there are several other important clauses in a lease that need to carefully be checked and understood, to avoid any disputes further down the line.  These include the rights and responsibilities of the landlord and the tenant during the lease period. 

For example, the lease will state what types of business can be carried out in the property, who is responsible for maintenance and dilapidations, the process for lease renewal and provisions to terminate the lease. 

What costs do tenants need to prepare for when renting a commercial property?

Other than the rent, rates and utilities, there are likely to be a few other financial considerations within any commercial lease. Sometimes there will be a requirement to contribute to the cost of the repairs of an estate road or an access road.

The lease will state all the tenant’s responsibilities towards the upkeep of the building.  It is important to seek legal advice to know what this involves.  The specific wording of the lease obligations will make a big difference to the size of any dilapidations liabilities when the lease comes to an end.

A landlord will also be required to have insurance protection against damage to the property and loss of rent. 

If a tenant is going to transfer the lease or sub-let the property to someone else, there can be costs to put this agreement in place.  

How can tenants ensure their lease is renewed when the term comes to an end?

The ability for a tenant to renew their lease depends on whether it has the protection of the Landlord and Tenant Act (1954).  If a tenant does have the protection of the Act, it can ask its landlord for a renewal.  Subject to statutory exceptions, the landlord cannot ask its tenant to leave at the end of the term.  The tenant can stay in occupation under what’s known as ‘holding over’. Then the tenant will continue the same terms until either the landlord or the tenant enters 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.

If the parties agree to contract out of the Landlord and Tenant Act 1954, a tenant will not have the statutory protections.  A landlord is entitled to ask the tenant to vacate the property at the end of the lease term.   If you are in this situation, and want to renew a lease, we recommend talking to us a few months prior to the end of the lease.  We can then start having discussions with the other party to agree the terms of a new lease immediately on the conclusion of the existing lease. If you are not able to agree terms, then there is still some time to be able to look around for alternative premises.  We can review the new lease and we can advise you accordingly.

Who is responsible for any necessary repairs to the property?

It is important to have it clearly stated in the commercial lease, who will be responsible for the upkeep of the property.  We can help to negotiate fair terms for both tenant and landlord.  Sometimes the landlord will require a tenant to take on a full repairing obligation, so it is important to calculate the financial impact of this before signing the lease.  A surveyor can provide a detailed report on the condition of the premises before a tenant commits to full liability.

What happens if additional repairs are needed that weren’t highlighted when a tenant signs the lease?

During the searches that we conduct, any known environmental hazards or issues will be uncovered.  We will also raise questions regarding the property, deal with any enquiries and review the answers provided to our questions to make sure everything is in order.  

As a tenant you should also view the property carefully and take professional advice from a building surveyor.  The “buyer beware” principle in law applies, so any tenant is agreeing to take the property “as seen”.

These are just some of the key considerations before signing a commercial lease. For more information and legal advice on any commercial property legal matters email [email protected] or call 01279 709100.