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Seven Key Terms Contained Within Commercial Leases

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Commercial leases enable a property owner to allow a business owner sole or partial occupation of their property in return for rent. Whether a tenant or landlord, you must understand the key terms and points of commercial leases. These may be in any new lease you sign as a new tenant or landlord. Many of these are in the commercial lease agreement, such as a rent review provision or a break clause; others may be terms related to commercial leases not found in the lease agreement. 

A commercial lease is legally binding, so you must adhere to your existing lease obligations and know your rights. However, it is not always possible to do this if you don’t understand lease terms. This article will explain critical vital terms associated with UK commercial leases.

Rent Deposit Deed

The rent deposit deed is a crucial term in many commercial leases. You may encounter this early in the lease process and before the commercial lease agreement starts. 

It is where a landlord requires the tenant to pay a rent deposit to the landlord as security in case the tenant fails to adhere to their obligations in the lease. The rent deposit details are in the deed, a written document separate from the lease agreement. There are rules associated with a rent deposit deed, such as

  • how much it is;
  • the interest paid; and
  • what happens if the landlord changes.

Common Parts 

You will generally see or hear the term ‘common parts’ in a lease where the lease refers to commercial premises within the property which contain more than one leased premises.

For instance, a building containing other offices may have common areas which various leaseholders can use. These can include the lobby or meeting space. You may see the term ‘common parts’ in a service charge rent provision.

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Guarantor or Surety

A guarantor is a third party to a commercial lease which guarantees the tenant’s lease obligations. They, therefore, promise that the tenant will carry out their lease obligations, and where they do not, they promise to do so for them. A landlord may require a guarantor where the tenant does not have sufficient financial holding to meet the lease rent.

Dilapidations

The term dilapidations in a commercial lease agreement describes part of a commercial tenant’s lease obligations. It refers to damage or disrepair a tenant may have been responsible for during the commercial lease term. They must put this right at the end of the lease term.

Schedule of Condition

A schedule of condition is a schedule attached to the commercial lease agreement. Not every lease will have a schedule of condition. A lease may have one where a commercial tenant wants to ensure they do not have full repairing liability. 

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Instead, their obligation for repairs will be to ensure they restore the property to the condition it was in at the start of their lease. The schedule of condition will formally detail the property’s condition at the outset of the lease as evidence of this. 

Underlease or sublease

A lease may have a provision that details the tenant’s right to sublease part or all of the premises. A sublease or underlease is a lease following the commercial lease in question. It exists where a tenant grants a lease to a third party to use part of or all the commercial premises. The tenant will be the landlord for this lease.

Vacant Possession 

Vacant possession is an essential key term in most commercial leases. It refers to how a tenant must leave a commercial property at the end of the lease term. It requires them to leave the vacant property empty when the lease ends. This means, for example:

  • there must be no furniture of theirs on the premises;
  • they must move their fixtures; and
  • they must take away their fittings. 

Key Takeaways

Commercial landlords and tenants need to understand many critical terms associated with UK commercial leases. One example of a key term is ‘guarantor or surety’. This refers to a third party to the commercial lease, which guarantees the lease in terms of the commercial tenant’s lease obligations. This means that where the tenant will adhere to them, they will instead.

If you need help understanding important critical terms associated with commercial leases, 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. Call us today on 0808 196 8584 or visit our membership page.

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