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When a business owner looks for commercial property for their business premises, they may decide on a commercial lease. This means they pay rent as a commercial tenant to a property owner of the commercial building, who is the landlord for the sole occupation of the commercial premises to carry out their business activities. A commercial lease agreement, often written by a law firm, will detail the new lease, which the parties must create. Usually, the commercial landlord is in charge of this, but both the landlord and tenant will participate in the process. It is essential to ensure you get the lease agreement right so it protects you both and gives you rights. This article will, therefore, explain what a model commercial lease should look like in the UK and focuses on new short-form model leases.
What Is a Commercial Lease Agreement?
A commercial lease agreement is a legally binding contract between a commercial landlord and a tenant in a commercial lease. It will contain all the lease details, including the rights and responsibilities of each party to the lease. You may also hear people refer to a lease agreement as a business lease or commercial tenancy agreement. It will typically cover, for example:
- office space;
- industrial buildings;
- restaurant premises; and
Components of a Model Lease Agreement
Below, we point out what a model lease agreement should include.
1) Parties, Definitions and Interpretations
A model commercial lease will begin by stating the parties to the lease, followed by a list of definitions of key terms within the lease agreement. Parties to the lease will conclude the commercial landlord and tenant but may also include a lease guarantor. Typical definitions will consist of, for example:
- common parts;
- insurance rent;
- rent review date; and
- service charge.
Following the definitions in the commercial lease agreement, you should place a list of crucial interpretations of what specific terms in the lease mean in detail. For example:
- what do you mean by ‘obligation’?;
- how to notify the other party when this expression arises in the lease agreement; and
- the significance of headings in the lease agreement.
2) Demise Area
The model commercial lease agreement should then outline the demise. This is the area the commercial lease covers, so the area the tenant has sole occupation of. This may be straightforward, where the commercial tenant leases an entire building. However, where they lease, for example, an area in a large building such as an office block, this will be more specific.
Commercial lease agreements often contain a plan to detail the demise area, to be more exact. This can provide clarification for both parties particularly if there is a lease dispute.
3) Obligations of Each Party
A crucial part of a commercial lease is the parties’ obligations to the lease. A model commercial lease will clearly divide this between the parties, so the:
- tenant’s obligations;
- landlord’s obligations; and
- lastly, the guarantor’s (if applicable) obligations.
It is up to the parties to the lease to decide what each party’s obligations are, but these will generally be similar in most commercial leases.
Typical tenant obligations include, for example:
- rent obligations;
- interest rules where payments are overdue;
- any fees the landlord incurs which the tenant pays;
- repair and maintenance;
- Alteration rules;
- allowing the landlord entry;
- use of the premises; and
- that they must comply with statutory requirements.
A landlord’s lease obligations, for example, include:
- that they allow the tenant quiet enjoyment of the property;
- insurance requirements;
- services provided;
- repayment of rent when a tenant pays in advance and reaches their end term date;
- any right to end the lease; and
- how they should give the tenant notices.
A guarantor’s obligation in a commercial lease will detail, for example, that they guarantee the tenant will comply with their lease obligations and that they will make good any losses the landlord suffers where they do not.
Following the lease obligations, a commercial lease may detail any break clause in the lease, which gives the parties the right to end it before the end-term date.
4) Jurisdiction and Legal Effect
A model commercial lease usually ends with the details of the jurisdiction the lease falls within and when the lease takes legal effect. The jurisdiction refers to which country the lease falls under, such as England and Wales. The legal effect refers to when the lease will begin, which is when it is legally binding on the commercial tenant and landlord.
This cheat sheet outlines what you should be aware of in your lease agreement.
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When you enter a commercial lease, you enter a lease agreement, which is a legally binding contract. It is, therefore, important that you draft this correctly, and it is wise to get legal assistance with this. This article has explained what a model commercial lease should look like. It explains that it will begin with details of the parties to the lease, definitions in the lease and any interpretations. Following this will be details of the lease demise. The article also highlights the importance of a lease in explaining all parties’ lease obligations, such as rent obligations for the tenant. A model commercial lease should also detail any break clause and end with the details of the lease jurisdiction and legal effect.
If you would like help to create a model commercial lease agreement, contact our experienced leasing lawyers 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. Call us today on 0808 196 8584 or visit our membership page.
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