You are here
Home > Property > Cutting through the jargon of commercial property

Cutting through the jargon of commercial property

Kevin Cruiks

Ayers & Cruiks

Leasing your first commercial property can present some challenges for those who are not used to the terminology and the way that commercial leases differ from residential properties.

Repairs

Many of us will be familiar with Assured Shorthold Tenancy Agreements that are used for residential properties, where most of the repairs and maintenance are carried out by the landlord. In the commercial marketplace, most properties are let on the basis of a Full Repairing and Insuring obligation making all repairs and maintenance the responsibility of the tenant.

The extent of this obligation can be quite onerous and can vary depending on the wording of the lease to the extent that the tenant could be asked to hand back the property back in a better state of repair than it was at the outset of the lease. It is therefore very important that tenants speak with their solicitor and surveyors so that they fully understand what their liability might be.

Rent

Rent is usually paid quarterly in advance on the standard quarter days, 25th December, 25th March 24th June and 29th September. The term “rent” can include service charge and insurance payments.

Be sure to make sure that rent is paid on time, as most leases will incorporate the ability for the landlord to charge interest at a penal rate above base rate, typically 3-4%, whilst this might not seem a problem in the current climate of low interest rates, it wasn’t that long ago when rates were 15%!

Service charge

If you rent a suite within a larger building with shared facilities then you may be asked to pay a service charge to cover the upkeep of the of the building and any shared facilities such as heating, air conditioning etc. It is important to check that you fully understand how much the service charge for your suite will be, as in this can be almost as much as the rent on some high spec buildings.

Business rates

In most cases Business rates are paid direct to the Local Authority and arrangements to pay monthly can be made. There are many business rates relief schemes in place and you should check with your Local Authority to make sure you are receiving any reliefs that may be available.

Rent reviews

Longer term agreements will allow the landlord to review the rent at regular intervals throughout the term, to a market value, typically after 5 years. There will be a specific clause in the lease that will document how the market rent is to be established. It is important to realise that the landlord cannot just name a figure and expect his tenant to pay the new rent, if the landlord and tenant cannot agree, then the matter can be referred to a third party expert or arbitrator. In most leases the rent can only go up, therefore if the market value of the review is lower than the rent payable, the existing level of rent will remain in place.

” The key to getting this right is to make sure you fully understand what liabilities you are entering into “

Assignment and subletting

If you want to dispose of your lease you may be able to instruct an agent to market the residue for you and assign the lease to a new tenant. The landlord will need to approve the new tenant and you may be asked to sign an Authorised Guarantee Agreement which means that if the tenant that you are assigned to goes bust, the landlord may come back to you and ask you to take back the lease and pay the rent.

You may also sublet the property, but you need to check the alienation clause of your lease to check whether this is permitted.

Lease end

Most leases fall with the protection of Part 2 of the Landlord and Tenant Act 1954. This means that a commercial lease will remain in place after the expiry of the contractual term, until either the landlord or tenant serves a notice to terminate it. At the end of a lease, a tenant will generally have a right to renew upon similar terms at a market rent. If a landlord wants possession he must serve a suitable notice, stating the one of 7 qualifying grounds for possession. The tenant may be due some compensation if these grounds for possession can be met.

The above represents a very simplistic explanation of common queries that prospective tenants raise. The key to getting this right is to make sure you fully understand what liabilities you are entering into, by speaking with your solicitors and your surveyors and taking proper advice.

[email protected]

Top