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Setting up or expanding? Pay attention to your lease terms
- AuthorSarah Davies
Sarah Davies, JCP Director and Head of Property Litigation, shares some advice on commercial property leases.
If you are planning to set up a business or to expand from a home-based business to having a dedicated office or shop front, you should think carefully about the detailed terms of the lease on your commercial property, before you sign on the dotted line.
It is often the case that entrepreneurs and start-ups plan carefully when it comes to working out whether they will have the funds to pay the rent on their new café, shop or office, but they sometimes overlook the other important responsibilities and terms laid out in the contract they sign with their landlord.
Commercial premises are leased to individuals, partnerships and business, with the terms of that occupation set out in a lease. This agreement confirms, amongst other things, the rent and the landlord’s and tenant’s obligations around maintenance, repairs and other issues, during the term of the lease.
Think carefully too about how your business needs might change over the next year, five years, or for the duration of the agreement you are signing.
Your business might outgrow the space you are signing up to, the make-up of the location may be about to change in a way that would impact footfall or customer contact, your financial position might change – would you be able to meet the rent if this happened?
Once you have signed the lease you have made a legally binding agreement and it isn't a simple matter to make changes - the terms of your lease must be respected.
If you do want to move before the end of your lease period your landlord can agree to terminate the lease early, by way of surrender, but they will be reluctant to do so unless they have an incoming tenant lined up.
If the space no longer suits your needs you may be able to assign or sublet your interest in the property to another party, but you will first need to consult your the lease to make sure this is legally possible.
Most leases do contain a provision which permits the tenant to assign or underlet the property, subject to the landlord’s consent, which should not be unreasonably withheld or delayed. The Landlord and Tenant Act 1925 allows the landlord and tenant to agree specific circumstances where the landlord can withhold consent or conditions subject to which consent may be granted.
Be aware though, that your landlord is entitled to expect reasonable payment from you to cover any legal or other expenses incurred in connection with granting a licence or consent. You should never consider allowing a third party to occupy your office without the landlord’s consent – this could result in the landlord forfeiting your lease and you could face damages and on-going rent and repairing costs event after you have left.
As you can appreciate, your landlord will want to make sure any new occupier under a sub-letting agreement treats the property well, so you may have to sign an agreement to guarantee the behaviour of the proposed new occupier. The new tenant may also have to enter into direct covenants with any head landlord.
There are circumstances when a landlord can reasonably withhold consent. For example, if:
- The value of the freehold would be reduced
- The financial position of the proposed tenant is not acceptable
- You, as the tenant, have failed to comply with the lease
- The proposed new tenant’s business class does not accord with the landlord’s mixed tenants use policy
Property Litigation expert, Sarah Davies, has developed into one of the most effective specialists in her field of work. Her expertise in property advice and property dispute resolution is seen as an important role in the evolution of the JCP. Sarah is a member of the Property Litigation Association, and has been recommended by the Legal 500 2016 edition. Sarah is a Welsh learner.
If you would like to contact Sarah, her direct dial is 01792 529 617 or alternatively you can contact her on email at email@example.com