What is an Agreement for Lease?

A commercial lease is where a landlord grants a business owner, their prospective tenant, the right of sole occupation of the commercial property. Accordingly, the business owner becomes the tenant and gains the right to run their business from the commercial premises. In turn, they will pay rent to the landlord, and both parties will sign a legally binding lease agreement for a specific lease term. However, there may be occasions when it is appropriate for the landlord and commercial tenant to make an agreement for lease before the commercial lease. This article will explain key reasons for having an agreement for lease in place.

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Agreement for Lease 

An agreement for a lease differs from what you may know as a commercial lease agreement. Despite the similarity in name, the two are not the same thing. Instead, it is an agreement to enter into a legally binding contract between a property owner and a business owner. It is a document that the potential landlord and tenant may sign before entering into the commercial lease through signing a lease agreement. 

An agreement for a lease will say that the parties who sign it agree to enter into a commercial lease in the future. It may specify that parties will enter into a formal lease agreement on an exact date or once a party has fulfilled certain conditions. 

Key Terms to Include in an Agreement for Lease

An agreement for a lease should contain all the general terms that the landlord and tenant have agreed will form part of the lease, such as:

• the property to be leased, including any fixtures and fittings;
• how the tenant will use the property;
• the identities of the landlord and tenant and any other party to the lease, such as a financial guarantor;
• the length of the lease;
• the agreed rental amount and other provisions relating to the rent, such as any service charges and rent review terms; and
• any lease obligations, i.e. who will be responsible for what during the lease term.

The agreement for lease should also include details on why the lease cannot begin immediately. For example, if there are required building works, the agreement for lease should include details on the expected completion of the work. You should also include any information about insurance for the property. If the lease is conditional upon a particular result, such as a successful planning permission application, the agreement for lease should detail how this will work.

If an agreement for lease is conditional upon a particular event, it will usually include a ‘long stop’ date. This is the agreed date on which, for example, construction work should be complete, and the parties can therefore sign the lease. If this date passes, the parties can agree to extend the date. Otherwise, if the date passes without an agreement, the parties are released from their obligations under the agreement for lease.

Benefits of Entering into an Agreement for a Lease

You may ask why property and business owners would enter an agreement to lease. It may seem more logical to simply enter a standard commercial lease agreement. However, an agreement for a lease offers certainty for both the landlord and the tenant where they cannot immediately enter into the lease. 

For example, if the landlord needs to carry out works to the property, having an agreement for lease in place ensures that the tenant will proceed with the lease. Likewise, a tenant may need to carry out work to a property whilst not occupying the property. In that case, a landlord may agree to carry out the work before beginning the lease. They can agree on this on the condition that the tenant signs an agreement for lease.

To avoid negotiation efforts going to waste, entering an agreement for a lease gives you some certainty before you sign a formal lease agreement. 

Situations Where an Agreement for Lease May Be Relevant

1. To Conduct Building Works 

An agreement for a lease may be useful for a tenant who needs to conduct work on the commercial property before they begin the lease. By signing an agreement for lease, the tenant can have access to the premises to carry out this work. 

The alternative is to enter the commercial lease and try to negotiate a rent-free period. However, this is time-limited. If the two parties enter an agreement for a lease, they may negotiate between them any fees the landlord may require from their potential tenant, such as to contribute towards insurance. 

2. Pending Planning Permission

A tenant may want to agree to a lease where they know they wish to enter a lease for a commercial property, but permission is first required. Obtaining permission from relevant authorities can take some time. So, before the lease can begin, an agreement for a lease may be appropriate.

3. Waiting for an Existing Lease to End

A commercial tenant may be in the process of moving premises, and so, from one commercial lease to another. If their current commercial lease is not complete, they will unlikely want to enter a new lease. An agreement to lease means both parties can be sure the new lease will commence once the existing one is complete. 

Key Takeaways

An agreement for lease is a legal contract where a property and business owner commit to enter a commercial lease in the near future. Doing so provides certainty that the lease will take place later. If you need help with 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. Call us today on 0808 196 8584 or visit our membership page.