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Commercial lease agreements- getting them right

The Landlord and Tenant Act 1954 governs the relationship between business landlords and tenants.

A commercial lease agreement is a contract between a landlord and business tenant, which sets out the terms of use of the commercial property, as well as the obligations of the tenant and landlord (such as maintenance, insurance, subletting, alterations etc.) It is therefore paramount that the lease is drafted correctly and it accurately reflects what was agreed between the parties to avoid costly litigation in the future.

Below are the common things to consider when drafting a lease agreement:

The key elements of a lease agreement

  1. The lease will typically include the description of the property being let (i.e. the full address, floor plan, any boundaries, fixtures and fittings, and whether there are common parts/shared access requiring a service charge).
  2. It will also cover the permitted use of the property and the term of the lease. This can help to determine what provisions are suitable for alterations, repairs and whether to include a rent review clause. The term of the lease will stipulate the length of the lease and what will happen at the end of the term.
  3. If there is a guarantor, the lease should set out the guarantor’s obligations.
  4. If a security deposit is paid, there should be a provision within the lease covering the circumstances in which the deposit will be utilised and how the deposit will be handled at the end of the lease.
  5. It is crucial that the lease sets out in clear detail the responsibilities and obligations of the landlord and business tenant, particularly in relation to maintenance, insurance, repairs, as well as how to deal with alterations.
  6. The lease will also include payment terms (i.e. frequency and method of payment) and a rent review clause outlining how the rent will change in line with market conditions and the frequency of these reviews.

Additional points to consider

  1. Whether to include a break clause which allows for the agreement to be terminated early by either party without penalty.
  2. Whether the parties intend to contract out of the Landlord and Tenant Act 1954 prior to the commencement of the lease (i.e. the parties agree that the tenant will not have security of tenure and will have no right to stay in the premises at the end of the term).
  3. Whether to include assignment and subletting clauses.

There are different precedent lease templates available, which are set out below:

  • The BPF Model Commercial Lease – available for free at http://modelcommerciallease.co.uk/
  • Land Securities Clearlet lease – (available on the Practical Law Company website).
  • The Law Society Business Lease – can be purchased from the Law Society website.

Before you enter into a commercial lease, it is highly recommended that you seek legal advice from a Solicitor. At Ashley Taylors Legal, we provide a lease review service to ensure that you are protected and aware of all the conditions set out in the lease agreement before you sign on the dotted line.

By Teni Tella

Disclaimer: The content of any article posted on this website is for general information only and shall not be deemed to be, or constitute legal advice on any general or specific matter.