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When entering a commercial lease agreement, both parties must understand the extent of the property the lease covers. Indeed, a detailed description is crucial in minimising confusion between tenants and landlords on their legal responsibilities. For example, the tenant may be responsible for maintaining the property’s physical state, such as keeping it in good condition and repair. This article will explain what commercial landlords should know about detailing the extent of the property.
What is a Commercial Lease Agreement?
A commercial lease agreement is a legally binding contract between you and your commercial tenant containing the terms and conditions. Additionally, it will outline each parties rights and responsibilities, including:
- the amount of rent your tenant must pay you;
- the length of time your tenant can occupy your property (the lease term);
- repair obligations; and
- a possible break clause for early termination.
A commercial lease agreement will also outline the basic but essential details of the lease, such as the parties to it and the address of the property the commercial lease covers.
What is the Extent of Property?
The extent of the property, or ‘extent of demise’, is crucial when leasing out a large commercial space under more than one commercial lease.
The extent of the property defines the space that the commercial lease covers for your commercial tenant. This is the space they use and pay for when they carry out their business purposes, and which they are then obligated to:
- repair;
- maintain; and
- eventually, hand back.
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Detailing the Extent of Property
It would help if you described the extent of your tenant’s commercial property in the commercial lease agreement. Clarifying your tenant’s demise is essential for the lease to be legally effective. If the demise’s extent is unclear or cannot grant exclusive possession, your commercial lease may not be valid as a lease. Instead, it could constitute a licence.
You should set out the extent of the property in the Heads of Terms and agree on it before you draft a lease agreement.
Hence, your commercial lease agreement should contain a plan that illustrates the:
- boundary details of the space; and
- shared communal areas such as meeting rooms, stairs, paths and entrance areas.
Depending on the nature of the lease, it may also specify (through plans or descriptions), the floorplan layout and included fixtures.
Other Lease Terms
Detailing the extent of the property helps avoid ambiguity. Additionally, the extent of the property will impact other terms and obligations in the commercial lease.
Clarifying the exact demise of the commercial property is essential in terms of repairing obligations in the commercial lease agreement. As a commercial landlord, you will typically state that your commercial tenant bears most of the repairing obligations in the commercial premises. Therefore, it is to your benefit to ensure that it is clear what the extent of the property in that commercial lease is, so they carry out their repair obligations correctly.
Furthermore, when you define the extent of the property in terms of your tenant’s repair obligations, it can reveal further rights that you may need to include in the commercial lease, such as access rights. For instance, if they need to access a neighbouring property.
The extent of demise is also crucial in terms of:
- rent reviews;
- alterations a tenant may request to make; and
- any service charge you request from your commercial tenant.
Key Takeaways
As a commercial landlord, detailing the extent of the property (or the extent of demise) the lease covers is crucial. This must be clear in your commercial agreement as it affects the obligations within the lease. For example, it will affect your commercial tenant’s repair obligations. It may also give rise to the need to include further rights for your tenant. Detailing the extent of the property is so significant in a commercial lease that without clarification, your commercial lease may be deemed a licence if challenged.
If you need help drafting a commercial lease in the UK, 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. So call us today on 0808 196 8584 or visit our membership page.
Frequently Asked Questions
A commercial lease is when you, as a commercial landlord, let a commercial tenant occupy your property for their commercial premises in return for rental payments.
The extent of property or demise details the exact area and part of the property a commercial lease covers.
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