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When you own commercial property, you will sometimes allow another business to occupy it as their business property for their business purposes. One critical decision you will need to make is whether you will have a commercial lease agreement or a commercial rent agreement in place. This will depend on your needs as a commercial landlord. Regardless of which you choose, both are legally binding, so you must choose the option that works for you. This article will help you decide as a commercial landlord whether you have a commercial lease agreement or a commercial rent agreement in the UK.
What is a Commercial Lease?
A commercial lease is when a commercial tenant or business owner occupies a property as their commercial premises. The commercial landlord will grant them the right to carry out specific activities on the business premises. In return, the tenant will pay the landlord rent on agreed dates.
Two key factors distinguish a commercial lease:
1. Commercial Lease Agreement
The commercial lease details are in a commercial lease agreement, which is a legally binding contract between you and your commercial tenant. It will carefully detail both your obligations and right within the commercial lease, which you must adhere to after signing it. You and your commercial tenant are only allowed to change terms in a lease agreement during the lease term if you both mutually agree to them.
2. Fixed-Term Contract
The commercial lease agreement is a fixed-term contract. This means that its duration is for a set long-term period, which will likely be 12 months or more. However, you may agree to it for less than this time, such as three or six months. This is between you and your commercial tenant.
What is a Commercial Rent Agreement?
Similarly, a commercial rent agreement is where a business owner occupies your property as their retail premises in return for rent payments at set intervals. However, a rent agreement is a short-term agreement to occupy the premises. This typically lasts a 30-day cycle and will usually automatically renew every 30 days unless otherwise stated.
In this sense, a rental agreement differs from a commercial lease agreement as it can change every 30 days. However, changes have to comply with rent control laws. Additionally, changes will usually require 30 days’ notice by yourself or your tenant, depending on who requests the changes. Changes may include:
- rental increase;
- change of lease terms; and
- requesting your tenant to vacate the property.
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Why Choose a Commercial Lease or Commercial Rent Agreement?
A commercial lease offers you a regular rental income for the fixed term of the commercial lease. This provides stability for you as a property owner. Also, as your tenant remains in your property for a fixed term, you do not have to waste resources looking for a new commercial tenant. In this sense, you avoid having a vacant property that does not generate income.
However, a commercial lease may not be suitable, given the prospect of rental prices rising only once a year may not be viable. Although your lease agreement may have a rent review clause, it is unlikely that you can exercise this before at least a year of the lease term passes. Additionally, if your tenant is problematic, you may find it tricky to evict them.
On the other hand, a rental agreement allows you to raise the rent often. It can also make it easy to ask a tenant to vacate your property where they are troublesome. However, a commercial rent agreement lacks stability since a long-term tenant will not occupy the premises.
This cheat sheet outlines what you should be aware of in your lease agreement.
Key Takeaways
As a commercial landlord, you may have to choose between a commercial lease agreement or a commercial rental agreement. Both are legal agreements and allow a business owner to occupy your property as their commercial premises. Each will also contain rights and obligations for you both. However, these are critical differences that may affect your choice. A commercial lease agreement, for example, is for a fixed period and a long-term duration. This can provide stability for a property owner. However, a commercial rent agreement works on a rolling 30-day basis. Therefore, you have the flexibility to change tenants and rental amounts.
If you need help choosing between a commercial lease or a commercial rent agreement, LegalVision’s 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.
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