When you lease commercial premises for your business, you will sign a commercial lease agreement with your landlord. This will contain the terms and conditions for occupying the property, such as the rental amount and lease term. One clause your lease agreement is likely to have is an alienation covenant. Knowing what an alienation covenant is and what yours means is essential. This is because it affects a tenant’s abilities. For example, it could determine your ability, as the existing tenant, to end your lease agreement early. This article will explain what a UK commercial tenant should know about alienation covenants in commercial leases.<\/p>\n\n\n\n
An alienation covenant in a commercial lease determines what you, as a commercial tenant, can and cannot do with the land you lease from your commercial landlord. It specifically prohibits, restricts or grants you a right to let others use the commercial premises. This is in terms of either:<\/p>\n\n\n\n
If your commercial lease agreement does not have an alienation covenant, arguably, you can do as you wish regarding the above actions. However, this is very unusual.<\/p>\n<\/div>\n\n\n\n
Below we explain what these terms mean.<\/p>\n\n\n\n
When you assign your commercial lease, you transfer your interest in the commercial lease to someone who wishes to purchase it. You do this for the remainder of your commercial lease. This means you will no longer be the tenant, and the other party who takes on your commercial lease becomes the tenant. <\/p>\n\n\n\n
You may wish to assign your lease where the commercial premises no longer meet your business needs or perhaps where you want to sell your business. You should note that most leases typically do not allow you to assign only part of the premises. Rather, you will likely assign the whole premises. It is also rare for a commercial lease to permit assignment in any manner whatsoever. Accordingly, you may have to obtain the landlord\u2019s consent. <\/p>\n\n\n\n
Underletting your lease is where you sublet the premises or part of it to another and become their landlord. You, therefore, grant a lease from your commercial lease. Your lease is then referred to as the \u2018head lease\u2019 or \u2018superior lease\u2019, and your landlord becomes the \u2018head landlord\u2019 or \u2018superior landlord\u2019.\u00a0<\/p>\n\n\n\n
A sublease will normally look much like your lease, and often your lease will specify some items you must include, like a clause contracting out of the security of tenure provisions, for example). The sublease should also end at least one day before the end term of your commercial lease.<\/p>\n<\/div>\n\n\n\n
Regardless of the sublease, you still have to abide by your lease terms with your landlord throughout your lease term.<\/p>\n\n\n\n
People may refer to sharing as parting with possession. This refers to allowing another party to occupy your commercial premises with you. However, this is not through an assignment or subletting. You may find sharing more common in retail and restaurant businesses. Where your alienation covenant allows sharing, it is usually only via a licence.<\/p>\n\n\n\n
Charging a commercial lease happens in two different ways. One is where you, as the commercial tenant, take a loan from a bank on the basis that you give the bank security. The security usually includes all your company assets, including your commercial lease. Another way is where you get advance finance from your bank, and in exchange, they take a fixed charge on your commercial premises. A commercial lease charge will usually occur in restaurants rather than office premises. <\/p>\n\n\n\n
As any alienation covenant in your commercial lease could potentially restrict what you can do with your commercial premises, it is advisable that, as a commercial tenant, you negotiate this covenant before signing your lease. You should do this at the heads of terms stage. There may be a time when your business requires you to dispose of your leasehold interest, and your alienation covenant may not let you do this. <\/p>\n\n\n\n\n\n Continue reading this article below the form\n <\/i>\n<\/a>\n