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As a commercial landlord or a business tenant, you should understand the main areas your lease agreement should cover. That way, you can ensure you negotiate to include them when you draw up the heads of terms of your lease. Heads of terms list critical points you intend for your lease agreement to contain. Knowing the main areas a commercial lease should cover and what they mean for you is also essential. This article will detail some of the main areas a commercial lease should cover in the UK.
What is a Commercial Lease?
A commercial lease is where a business owner (the lessee) leases property for their commercial premises from a commercial property owner (the lessor). The lessee enjoys sole occupation of the commercial property for a specified period. In return, the tenant pays the landlord rent.
The commercial lease agreement will include all details regarding a commercial lease, such as the positive and restrictive covenants. Positive covenants obligate one of the parties to the lease to perform something, and restrictive covenants obligate them not to perform specific actions.
A Security of Tenure
A commercial lease agreement will detail whether or not the lease has security of tenure. If a lease has security of tenure, it is a protected lease. In this case, the lease will not automatically end at the end of the fixed term, and the tenant gains a right to renew it. The renewal lease is usually on terms that mean the tenant is better off than it was under the original lease, although the parties are free to negotiate terms.
The default position for most landlords now is to require you to complete the lease in a way that means you ‘opt out’ of the security of tenure protections. This is especially true of shopping centres and office blocks. This is legally permissible, provided it is done in the right way. Generally, commercial leases will contain a clause to this effect and a statutory declaration by the tenant before you enter into the lease. Whether a lease will be protected will normally be decided at the heads of terms stage.
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The Length of Lease
Every commercial lease should cover the lease length, which signifies the time a commercial tenant will remain in the property as their commercial premises. Depending on the type of lease, the term will be a fixed term, which, for commercial tenants, is usually a period between 12 months and 15 years. Sometimes this might be broken up and give you ‘options’ to enter into renewal leases. However, landlord’s usually prefers a single fixed term with a break right in place of options.
The Rental Amount
Every commercial lease must state the rental amount the commercial tenant must pay the landlord for using the property as their business premises.
The lease may also detail if there will be a rent review for the rental amount during the lease’s term. This is where a commercial landlord checks whether the rental amount is still appropriate for the commercial premises and may compare it to the property market value for similar business premises in the area. A rent review tends to be every three to five years, but a commercial tenant may negotiate the frequency with their commercial landlord at the outset of their lease.
The Use of Premises
When a commercial tenant leases property space from a landlord, the commercial lease should detail what they can use the property for. This is the ‘permitted use’, and it must outline what the property is permitted to be used for under planning law.
What a tenant can use the property for may be very specific. A commercial landlord may find it beneficial to prescribe the use of the premises as general. This will allow a long-term tenant to continue a lease where the nature of their business may change. It will also give the landlord more choices for a new tenant to assign the lease.
Key Takeaways
A commercial lease agreement in the UK can cover many areas of the tenant’s lease of the property from their commercial landlord for their business premises. However, there are some primary areas every lease should cover, which commercial tenants and landlords should be aware of. The main areas of a lease include:
- whether it has a security of tenure;
- the lease term;
- the rental amount; and
- what the use of the commercial premises is.
If you need help understanding the main areas of a commercial lease in the UK, LegalVision’s experienced leasing lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. So call us today on 0808 196 8584 or visit our membership page.
Frequently Asked Questions
A commercial lease agreement is a legally binding contract between a commercial landlord and tenants which details the latter’s use of the landlord’s property for their commercial premises,
There are many areas a commercial lease agreement should cover, such as the rental amount and the time of the fixed term.
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