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In some business circumstances, it may not be possible to enter a commercial lease immediately. For example, you may have found an ideal commercial property to rent, but the commercial landlord wishes to carry out work to the property before the lease begins. In this instance, you could enter an agreement for a lease with the commercial landlord. This article will explain what is a lease agreement and how to terminate a lease agreement.
What is an Agreement for Lease?
An agreement for a lease is not a commercial lease agreement. Instead, it is a contract that indicates the parties’ intention to enter a commercial lease at a particular point in time. The contract for lease may describe this as:
- a specific date; or
- when parties fulfil certain conditions.
An agreement for lease may also contain a draft of the future commercial lease agreement for clarity. It will also cover any matters that need to be covered before the commercial lease can begin. For example, it may detail the relevant searches that you may need to carry out before you enter a commercial lease.
What Are the Benefits of Entering into an Agreement for Lease?
It may seem more logical to simply enter a standard commercial lease agreement. However, an agreement for a lease offers certainty for both the landlord and the tenant, where they cannot immediately enter into the lease.
Some instances where an agreement for lease might be necessary include when a tenant:
- needs to conduct work on the commercial property before they begin the lease;
- is waiting to obtain permission from relevant authorities; and
- must fulfil their current lease period at another commercial property.
To avoid negotiation efforts going to waste, entering an agreement for a lease gives you some certainty before you sign a formal lease agreement.
This cheatsheet includes practical tips to understand key clauses and avoid disputes in leasing agreements.
How Can I Terminate an Agreement For Lease?
An agreement for lease is legally binding where:
- it contains an offer of the lease and acceptance of this;
- both parties intend it to be binding
- there is consideration either as money or through a deed; and
- both parties can enter the agreement for lease.
As a result, each party to the agreement must enter the future commercial lease. Where they fail to, they are in breach of the agreement for lease.
Unfortunately, things may not always turn out as parties to the agreement for lease intended. This can result in the need to terminate the agreement for lease, as no commercial lease will later be entered into.
When an agreement for a lease has a longstop date, the agreement should also specify whether:
- the tenant will get their deposit back; and
- either party can extend the longstop date.
There are also particular instances when an agreement for a lease may need to be terminated. The agreement should detail these instances, such as:
- if the prospective tenant enters into bankruptcy; and
- where the prospective tenant becomes insolvent.
Key Takeaways
As a prospective commercial landlord or tenant, you may agree to lease a property before you enter into an official commercial lease. This may be because you need to carry out work to the property before you enter the lease. However, as there may be circumstances that mean parties to an agreement for lease cannot enter the commercial lease, you need to know about terminating an agreement for lease. To this end, you should have a longstop date in your agreement for the lease. This is a date you can terminate the lease up until conditions have not been met.
If you have questions about how to terminate an agreement for a lease, 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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