What Are the Advantages and Disadvantages of Offering a Protected Lease?

When offering a commercial tenant a commercial property lease for your property, one of the decisions you need to make is whether you will offer a protected or a non-protected lease. There are advantages and disadvantages of a protected lease both for you as a landlord and your commercial tenant. This article will explain the advantages of a protected lease to help you decide whether to offer one. 

What is a Commercial Lease? 

A commercial lease is where a property owner allows a tenant to occupy your property as their commercial premises. You will allow them to carry out specific business activities, and, in return, they will pay you rent. A commercial lease agreement will contain the lease details, which include your rights and obligations. 

For example, the lease agreement will contain:

• the lease term, which is the time your commercial tenants occupied the property;
• the rent amount;
• any break clause;
• alienation covenants; and
• repair and maintenance obligations.

What is a Protected Lease?

A protected lease is a commercial lease that has security of tenure. Security of tenure protects your tenant by granting the automatic right to renew their tenancy at the end of the lease term. Therefore, they remain in the property.  

Under a protected lease, you cannot deny the renewal unless you rely on one of the limited legal grounds. The legal grounds include:

• demolishing your property;
• occupying the property yourself; or 
• deny the renewal where your tenant has consistently paid their rent late. 

If you deny the renewal, there are procedures you must complete, and a tenant can dispute your reason to deny the renewal. 

What Are the Advantages of a Protected Lease?

1. Stability

The advantages for you as a commercial landlord of offering your tenant a protected lease include stability for the commercial property in terms of a tenant. Your tenant will likely remain the same tenant for some time. 

Furthermore, they may decide to stay in the commercial premises and take advantage of the protection that security of tenure offers. This means you:

• know your tenant, and they are familiar with the lease and commercial property;
• enjoy no break between commercial leases as no period of non-occupation and loss of rent will occur; and
• establish rapport with a tenant who pays rent on time and has fulfilled their lease obligations.

2. Resource Efficiency 

Providing a protected lease means you also enjoy the advantage of not needing to spend resources on advertising your property for lease and looking for new tenants. This can save you time and money.

3. Administrative Ease With a Protected Lease

In a protected lease, the lease terms remain the same once the renewal takes place. This means you can save time and money on drafting new lease agreements. Nevertheless, you should note that the tenant can request new terms. 

What Are the Disadvantages of a Protected Lease?

1. Loss of Flexibility 

One key disadvantage is that you lose flexibility at the end of the lease term. This means that you cannot choose new tenants for your commercial property. Therefore, if you want to lease to a different tenant on better terms for you, you are unable to. 

2. Minimal Control 

A further disadvantage is that you have less control over your property. If you want to change tenants at the end of the term lease date, you can only do so if you have one of the limited legal reasons to refuse a lease renewal. 

Therefore, you do not control who leases your commercial property from you. However, where the lease was unprotected, you would not have to give a reason for your tenants to leave the property since they have no right to remain.

3. Protected Lease Dispute

If you do have one of the limited legal reasons to evict your commercial tenants, you could face costly legal proceedings. These include a Section 25 Notice and potential court proceedings should the tenant dispute your reason.

Cheat Sheet for Leasing Terms

This cheat sheet outlines what you should be aware of in your lease agreement.

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Key Takeaways

As a commercial landlord, you need to decide if you will offer a protected or a non-protected lease. A protected lease grants your tenants the automatic right to renew the lease at the end date. You can only refuse a renewal in limited instances. 

If you need help drafting a commercial lease agreement, 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.