Steven Haynes at HRJ Foreman Laws Solicitors answers five of our most frequently asked questions about leasing business premises.
1. Why are ‘Heads of Terms’ important? These summarise the agreed commercial terms and form the basis for the legal documents. They’re not legally binding, but it’s often hard to row back from an ‘agreed’ position in the Heads of Terms. If it’s important to you, it should be recorded in the Heads of Terms. If you’re unsure then consider legal advice at an early stage to ensure the commercial terms represent your best options.
2. What exactly are the ‘premises’? – Misunderstandings about the extent of the ‘premises’ are surprisingly common. Generic leases can often leave grey areas where it’s unclear which party is responsible, such as balconies, shop fronts and air conditioning equipment. Whether you’re a landlord or tenant, as you look around the premises work out what will be the tenant’s responsibility and what will be the landlord’s, then you can ensure the lease is clear with no gaps.
3. What’s the repairing liability? – A standard lease will oblige a tenant to ‘keep the premises in good repair’. Tenants should be aware that an obligation to ‘keep in repair’ might include an obligation to fix existing disrepair and there is no real concept of ‘fair wear and tear’ in commercial leases. For dilapidated properties, you might consider a schedule of condition to strike a balance for repairing responsibility, but if you do then ensure it’s a professionally prepared schedule – a set of printed phone-photos with no surveyor’s notes are unlikely to clarify things 5 years later!
4. What is security of tenure? – Business leases receive statutory protection, generally giving the tenant the legal right to continue the lease at the end of the term and renew the lease on similar terms at the market rent. However, parties are free to ‘contract out’ of this protection, with no statutory right to remain in occupation and any renewal to be by negotiation, which might leave a tenant in a vulnerable position. For tenants where the location is crucial, such as shops, restaurants and bars, consider this carefully as you might want to remain in those premises when your lease expires.
5. How is rent reviewed? – The ‘open market’ rent review is still the most widespread, with the rent ascertained by reference to comparable local premises, but inflation-linked reviews are increasingly common, such as pegged to the Retail Prices Index. For landlords, the key point is that reviews should be ‘upwards only’, guaranteeing a minimum rent, but beyond that the choice depends on your view of future rents or inflation. Recently, to give comfort to both parties, we’ve seen a growth in ‘cap and collar’ RPI reviews, with a minimum increase (the ‘collar’, e.g. 2% pa) and a maximum (the ‘cap’, e.g. 5% pa).
For advice on your commercial lease requirements, please contact Steven Haynes in the Commercial Property team at HRJ Foreman Laws Solicitors.
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