What Key Terms Do I Need to Include in My Commercial Lease Agreement? 

You form a commercial lease when you lease your commercial property to a business owner. Further, a commercial lease agreement will govern your lease, which contains your and your tenant’s rights and obligations. Include the key terms you require in the agreement to protect your property interest. This article will detail some key standard terms commercial landlords should include in a commercial lease agreement. 

What is a Commercial Lease Agreement?

A commercial lease agreement is legally binding between you and your tenant. It contains all the details of the commercial lease, which you are both parties to. It will set out both parties’ rights and obligations regarding the commercial property, such as the:

• lease end date;
• rent details; and
• repair obligations.

Key Terms  

As a commercial landlord, you should know the key terms your commercial agreement should contain. Whilst you should have a solicitor draw up your commercial lease agreement, knowing these terms is helpful. This will give you a head start when negotiating the commercial lease with your prospective tenant. Here we outline some of the key terms.

Basic Details

Your commercial lease agreement will need to contain the basic but essential details of the commercial lease. If you are a commercial landlord with numerous commercial properties to lease, this will help you identify one lease from another. These critical key terms of the commercial lease are:

• the definition of the premises, which is the detail of the property or area of the property the commercial lease covers;
• your details as the commercial landlord and the details of your commercial tenant; and
• the lease term’s length (how long the lease lasts).

Usage Terms

Key terms you must include in your commercial lease are usage terms. These state what your tenant can use the commercial premises for, such as the business activities they can carry out. If you have a long-term lease, consider keeping these as comprehensive as is in your interest to give your tenant flexibility should they need to change business activity.

Equally essential to include here are activities which you do not permit on your commercial premises.

Repair and Maintenance

As a commercial landlord, you must make clear in your commercial lease agreement what your tenant’s repair and maintenance obligations are for the commercial premises. It is naturally in your interest to ensure that repair and maintenance are mainly your tenant’s responsibility. Therefore, you may wish to ensure these terms make your commercial lease a Full Repairing and Insurance Lease (FRI). This means that you will include lease terms which specify that your tenant must pay for:

• all repairs;
• all maintenance, and
• property insurance.

Rent Review Clause

As a commercial landlord, you must include a rent review clause in your commercial lease agreement where the lease term is five years or more. This gives you the right to periodically review the rent your tenant pays you to ensure it reflects the investment value of your property.

A rent review clause typically says that you review the rent every three to five years and will detail the type of rent review you carry out. This could be an:

• open-market rent review; or
• index-linked rent review.

Contracting Out

If your commercial lease is a short-term lease, like many commercial landlords, you may wish to include a clause which means your lease contracts out of part of the Landlord and Tenant Act 1954. 

Doing so means that your tenant does not have the security of tenure, which is a legal automatic right to renew the commercial lease when it reaches the lease end date. This may be in your interest where you do not want the tenants to remain in the property and saves you the hassle of the legal notices associated with a tenancy with the security of tenure.

Key Takeaways

There are several key terms you should consider including in your commercial lease agreement. For example, a rent review clause ensures your tenant is paying rent at a rate which reflects the property’s changing value and repair. Additionally, consider maintenance terms which place the obligation on your tenant rather than you.

If you need help understanding key terms you, as a landlord, need to include in your commercial lease agreement 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.

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