What are Restrictive Covenants in a UK Commercial Lease?

A landlord and tenant form a commercial lease when the former agrees to let their property to the latter. When this occurs, they will create a commercial lease agreement, setting out the terms and conditions of the arrangement for the commercial property. Terms and conditions of a commercial lease are the leasehold covenants and clauses that detail the commercial lease rules. The positive covenants oblige one party to do something, such as certain actions they must carry out in the commercial lease. This article will explain what restrictive covenants mean in a commercial lease. Both commercial landlords and tenants must abide by restrictive covenants in commercial leases or risk breaching them.

Commercial Leases   

When a commercial landlord lets a commercial tenant use their property, they act as a lessor and the latter as a lessee. The landlord allows the tenant sole occupation of a property in return for rental payments. The landlord will allow this for a given length of time, known as the lease term, and only for a specific business purpose. 

The lease agreement will set out all the terms of the lease, such as:

• the lease term;
• the rental amount;
• any rent review clause;
• the termination rights and obligations; and
• repair and maintenance obligations.

Such lease terms comprise a mixture of positive obligations on the parties as well as restrictive ones. Both positive and restrictive covenants are, in effect, promises made by the parties on the lease. Positive covenants typically fall to the freeholder, so the lessor or landlord. 

Restrictive Covenants  

More widely in commercial contracts, restrictive covenants play the role of stopping a party from carrying out a commercial activity which may put them at a competitive advantage over the other party. A restrictive covenant in a commercial lease agreement is, therefore, a promise from one of the parties not to do something within the commercial lease. As it is a restricted promise, it restrains them from doing something or allows them to do it, provided they have permission. Restrictive covenants typically bind the leaseholder, that is, the lessee or commercial tenant.

Some examples of restrictive covenants are to:

• prevent specific conduct on the property;
• restrict the tenant from using the property for particular business use;
• prevent the tenant from constructing other property on the land;
• ensure the commercial tenant only makes alterations to the property with the permission of the landlord;
• not install hard floors;
• not park large vehicles outside the commercial premises; and
• refrain from casual nuisance at the property.

Failure to Abide by Restrictive Covenants

A landlord will want to enforce their rights in the commercial lease when a tenant fails to comply with a restrictive covenant. A breach of the commercial lease, for example, can lead to lease forfeiture or injunction proceedings. To issue legal proceedings, the commercial landlord can, for example, serve the commercial tenants with section 146 forfeiture notice.

Key Takeaways

If you are a landlord or tenant in a commercial lease, you will have rights and obligations you must follow. These can consist of positive and restrictive covenants. The latter tends to apply more frequently to commercial tenants. They restrict a party to the lease in what they can do regarding the use of the property, such as not using the premises in a particular way. Restrictive covenants can also require a party to a commercial lease to only act if they obtain consent from the other party first. For example, to obtain permission before making any property alterations. Not abiding by any restrictive covenants in your commercial lease can lead to legal actions, such as forfeiture of the lease. 

For more information about restrictive covenants, 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.

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