Table of Contents
A commercial lease is a legally binding contract between a tenant and their landlord. It grants a tenant the right to sole occupancy of the property, which they will use as their business premises. In return, a tenant will pay an agreed rental amount. As a tenant, you rely on your lease agreement to detail your rights and obligations. While your lease agreement will state the rules surrounding the commercial lease, unfortunately, it does not guarantee you will never encounter problems as part of your lease. This article will unpack potential issues a tenant may face in a commercial lease.
This cheat sheet outlines what you should be aware of in your lease agreement.
1. Business Problems
A potential problem you could encounter when committing to a commercial lease is that your business runs into hardship. Where you struggle to make a profit, this will affect your commercial lease and your ability to pay your rent. While you juggle between paying wages, insurance, stock, and other business expenses, meeting your rent obligations can be challenging.
Since commercial leases are often for a fixed term, you will have limited options to end your lease early. This means you must pay the rent until the lease expires. Likewise, leaving your lease might not be ideal, and it will further impact your customer’s ability to visit your business.
If your business does face financial problems, it is best practice to communicate with your landlord. Together, you might agree to temporary solutions that benefit both parties. Indeed, your landlord would likely prefer you stay in the lease, so they can avoid the struggle of finding a new tenant. One solution would be to negotiate a rent reduction when you are due to renew your existing lease agreement. You might also consider subletting part of your commercial lease to another business, to help provide you with extra income to meet your rent payments. Finally, if your business’ financial situation becomes dire, you might rely on a break clause in your lease to terminate the lease early.
2. Rent Review Disagreements
Your lease agreement may include a rent review clause. This clause allows your landlord to review the rental amount you pay, commonly every five years. Most of the time, this will increase as a result. There are different methods for rent reviews, such as an open market rent review.
A potential problem a commercial tenant may face with their lease is disagreeing with the rent level after a rent review. You might feel the new amount is unfairly high or not reflective of what it should be. Where it is an open market rent review and the new amount does not reflect the actual open market value of your business premise, it will automatically be invalid.
Your lease agreement should detail how you deal with a rent review dispute. Usually, this will be through an independent third party, such as an expert or arbitrator. If they do not resolve the dispute before your following rent is due, you would continue paying the current rate. Then, you would need to pay any difference once the dispute is resolved.
Continue reading this article below the formCall 0808 196 8584 for urgent assistance.
Otherwise, complete this form and we will contact you within one business day.
3. Liability for Repair and Maintenance Costs
Another potential problem you may face is when you do not fully understand your repair obligations under the lease. When you enter a commercial lease, your agreement will detail your and your landlord’s responsibility to repair and maintain certain elements of the premises. If you do not understand your repair obligations in a commercial lease, you could face the problem of a large dilapidation bill when you reach your lease end term.
Nowadays, commercial leases tend to obligate the tenant to make and pay for most of the repairs for a commercial lease. Therefore, you are responsible for all the repairs for the commercial property. Where your landlord makes repairs to the structure and exterior of the commercial property, you will pay for these indirectly when your landlord recovers these costs from you. Ultimately, understanding your obligations surrounding repairs and maintenance of your commercial premises will avoid disputes over who is responsible for costs.
Key Takeaways
As a commercial tenant, you may face problems with your landlord at some stage in your lease term. If you do, it is helpful to know how to resolve these and prepare yourself. Common problems include:
- where your business’ financial situation impacts your ability to pay rent;
- disagreements with your landlord’s rent review increase; and
- determining who is responsible for repair and maintenance costs.
If you need help understanding your rights in your commercial lease, our 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 for a low monthly fee. So call us today on 0808 196 8584 or visit our membership page.
Frequently Asked Questions
A commercial lease is a legally binding contract between a tenant and landlord for the tenant’s sole occupation of the landlord’s commercial property.
Commercial tenants could face numerous potential problems in a lease. For example, they may have difficulties agreeing on the new rent during the rent review process, which causes them to dispute the new proposed rent.
We appreciate your feedback – your submission has been successfully received.
