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Entering into a commercial lease to secure business premises for your company is a significant decision. You enter into a new lease agreement with your commercial landlord as a business tenant, which is a legally binding contract. As a result, you commit to paying your landlord a specific amount of rent at regular intervals, which is likely a large business expense. Therefore, when you sign a commercial property lease agreement as a new tenant, it is crucial to understand the definitions of the terms contained within it. These will detail your and your landlord’s rights and responsibilities in the lease. However, these can sometimes be confusing, so this article will explain three standard definitions found in a UK commercial property lease.
1) Lettable Area
A vital definition in your commercial property lease is the term “lettable area”. You may also see leases refer to this as the lease demise. It explains the exact area in the commercial property that the commercial landlord rents to you as the tenant for your business premises. It is, therefore, essential to note exactly what it covers if, particularly, for example, if you are a tenant amongst many in a shared commercial building. This is a common situation for office spaces.
The lettable area usually includes square metres of floor space, and you should understand how the landlord calculates this. It is, therefore, helpful to note that floor space:
- is measured from exterior walls, doors and windows;
- includes any walls, doors and windows that may divide the commercial spaces for any common areas and facilities;
- where the property adjoins other rental spaces measures from the centre line on internal walls; and
- where columns, ducts or any other structural elements occupy the business premises, there is no deduction for the space these take.
2) Distress
A term a commercial tenant such as yourself may not be familiar with in a commercial lease is the term ‘distress’. This refers to a situation when you are in arrears for rent in your commercial premises.
It describes that your commercial landlord has a right to recover using the Commercial Rent Arrears Recovery Procedure (CRAR). This is a statutory procedure found in the Tribunal, Courts and Enforcement Act 2007, where your landlord instructs an enforcement agent to recover the rent payments from you. When they recover the late rent, they can also recover:
- interest on the rent payments; and
- any VAT due on the rent payments.
There are rules and procedures for the CRAR process, which you, as a tenant, should familiarise yourself with if you are in rent arrears. This will satisfy you that your landlord has a right to use CRAR and does so correctly.
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3) Abandonment
Arguably, a term you may not expect to see in a commercial lease is ‘abandonment’. This refers to if you, as the commercial tenant, abandon your commercial premises before the end of your lease term. If this occurs, this definition in your commercial lease will explain that your landlord has a right to enter the premises. Where they do, the definition will likely present the following:
- that your commercial landlord is not liable for prosecution if they do this;
- if your landlord damages the property in the process, they do not have to pay you, as the tenant, damages;
- your landlord has a right to relet part or all of the property for the rest of the lease term and collect rent for this;
- that you are liable for any difference in the new rent through reletting and the level of rent you currently pay for the length of the unexpired lease term; and
- any personal property you leave on the premises when you abandon it, the landlord can treat it as abandoned property and dispose of it.
Where a commercial landlord does dispose of personal property left in the commercial premises when a tenant abandons it, some rules apply. They must dispose of it as allowed through the Torts (Interference with Goods) Act 1977.
This cheat sheet outlines what you should be aware of in your lease agreement.
Key Takeaways
When you are part of a commercial lease, you enter a legally binding contract. You, therefore, need to understand the definitions in your lease agreement. This article has explained three standard definitions found in a commercial lease agreement. It explains what is meant by lettable area, distress and abandonment. The article details that the lettable area is the exact area that your landlord leases to you as your commercial premises. Distress is when you are in rent arrears, and your landlord can recover this using CRAR. Finally, abandonment is where you abandon the property before your lease term expires and the rights this grants the landlord.
If you need help understanding any of the definitions contained with a commercial property lease agreement and how they could impact your business, contact our experienced leasing lawyers 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. Call us today on 0808 196 8584 or visit our membership page.
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