Tom Halliday, 12 April 2024
Although it is not required to instruct a solicitor when negotiating for or entering into a lease of commercial premises, it can lead to a host of problems as negotiations are much harder to conclude without professional advice on both sides. We also often receive instructions from Landlords and Tenants to help resolve commercial lease disputes where no advice was taken at the time of contract.
In addition to the negotiation of the commercial terms, there are many compliance and regulatory obligations bestowed on Landlords and Tenants, which, in the absence of professional advice, are not always known to the parties leading to hidden risk.
Listed below are a few examples to be considered before negotiating terms for a commercial lease.
LANDLORDS
Security of Tenure: Tenants of commercial premises have an automatic right to remain at the property at the end of the contractual term under the Landlord and Tenant Act 1954 known as ‘security of tenure’. Such security can however be ‘contracted out’ so if the Landlord does not intend to grant security to the Tenant, a clear procedure to exclude this right must be followed. Should the Landlord fail to follow this procedure, regaining possession can become costly in time and resources.
Minimum Energy Efficiency Standard (MEES) Regulations: MEES were implemented on 1 April 2023 and the regulations state that all properties being let have to achieve an Energy Performance Certificate (EPC) rating of ‘E’ unless exceptional circumstances apply (which must be registered in advance). If there is a breach of the MEES Regulations, the Landlord is open to sanction calculated based on the rateable value of the property. Addressing this at tenancy commencement and in the lease is in the Landlord’s best interest.
TENANTS
Repairing obligations: The first draft of a lease will usually be prepared by the Landlord’s Solicitors. Unsurprisingly, this means the terms are likely to be drafted in the Landlord’s best interests. For example, if a property is in a poor state of repair at tenancy commencement, and there is no limitation on the Tenant’s repairing obligation at the start of the lease, it is more than likely the case that the lease will be a full repairing and insuring lease (FRI). Under an FRI lease, the Landlord could issue a dilapidations claim requiring the Tenant to put the property back into a good state of repair, which may exceed the original state of the property. The totals of these works could prove very expensive for the Tenant.
Limitation on Service Charge Obligations: Leases often include provision for a service charge, making the Tenant liable for a ‘fair proportion’ of the costs incurred by the Landlord to maintain certain aspects of the property. The wording used for a clause of this type can provide a level of uncertainty and without professional advice, the Tenant could have additional costs to pay without full knowledge of the terms. An example to mitigate such costs could be for the Tenant to negotiate an annual upper limit for their service charge contributions.
Post-Completion Requirements: Stamp Duty Land Tax returns may be due within 14 days of completion, or a penalty fee will be payable. Leases that have a term of over 7 years are compulsorily registrable at HM Land Registry within two months of completion, failure to do so can leave the lease invalid.
If you would like to discuss the above, or any other Commercial Property matters, please contact Tom on 0117 9733989 or to info@amdsolicitors.com.
