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A commercial lease dispute often arises due to misunderstandings around outgoings. The term ‘outgoings’ in a commercial lease typically refers to the costs and expenses connected to the leased premises. The outgoings are those which concern, for example:
- rent;
- service charges;
- building insurance; and
- repairs.
Unfortunately, lease disputes can arise regarding outgoings in a commercial lease. In a worst-case scenario, one party might commence litigation against the other to resolve the lease dispute. This article will explain three essential tips to prevent a leasing dispute over outgoings.
1. A Clear Lease Agreement
Commercial lease disputes involving outgoings often relate to the payments a tenant makes as part of the lease. The tenant’s payments, in turn, affect the landlord’s outgoings for the property. For example, a commercial tenant may pay a service charge for the upkeep of shared areas in the commercial property. The tenant’s service charge will then reimburse the landlord for the costs they pay to ensure contractors maintain these areas.
Lease disputes over outgoings are easy to prevent. If your lease agreement is clear as to the outgoings your tenant must pay, there is likely to be no dispute. Disputes often arise at the end of a lease when a tenant is expected to pay the landlord’s dilapidation claim. These disputes arise because, often, the tenant is unaware of what repairs can be included in this dilapidation claim.
Subsequently, you should make sure your commercial lease agreement is as clear as possible. Clarity will:
- ensure that each party to the lease understands what they need to pay and when;
- ensure that the outgoings were agreed to in advance as each party signs the commercial lease agreement at the start of the lease term;
- provide evidence of both the above and a reference tool should an issue arise, preventing it from turning into a lease dispute.
2. Good Communication Between Parties
To avoid a lease dispute outgoings, you should maintain good communication with your landlord or tenant throughout the lease term. Good communication means that parties to the lease discuss issues concerning the outgoings. They can address and resolve them as they arise before they become a lease dispute. If you let these issues build up, they can get out of control.
For example, if the shared area is dirty or untidy, a tenant may refuse to pay the service charge. Rather than refusing to pay, a tenant should communicate with their landlord to notify them of the issue. This act is likely to reduce the propensity for a lease dispute. The landlord may simply have not even been aware of the issue. Upon the issue being brought to their attention, they could instruct their contractors to fix the issue.
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3. Accurate and Up-To-Date Documenting
Our third essential tip to avoid a leasing dispute over outgoings is that you can never document enough. Your recording and keeping evidence of any outgoing issues concerning your commercial lease provides extra clarity and evidence. This evidence is useful should a problem arise in the commercial lease. It is crucial you have clear documents to back up facts and evidence relating to the commercial lease. You can refer back to these documents if a question arises or if a problem begins to emerge. Consequently, you may be able to resolve the issue before it becomes a lease dispute.
These documents are crucial to avoiding a lease dispute over outgoings. Here are some examples of how you can document any matters, developments or incidents relating to your commercial lease:
- create a schedule of conditions at the start of your lease to accurately record the exact state of the property in terms of any potential repairs that the tenant must complete;
- take photos and videos of the commercial premises in connection with the above but also in terms of any new issues which arise, such as new repairs or problems with something working correctly in a shared area which the tenant pays a service charge for; and
- collecting evidence of the market value of properties in the same area before a rent review to demonstrate the typical value of properties in the area to avoid any discrepancies between your and the other party’s opinion of what the rent should be.
This cheat sheet outlines what you should be aware of in your lease agreement.
Key Takeaways
Whether you are a commercial landlord or commercial tenant, you will incur costs associated with the commercial property. These are your outgoings in the commercial lease. Parties to a lease should always try to avoid a lease dispute, and outgoings can be a reason for one to occur. This article has provided three critical tips so you can avoid a lease dispute over outgoings. Firstly, a clear lease agreement clarifying the obligations regarding outgoings is critical. This will likely reduce any conflict between you and your landlord. Secondly, maintaining good communication with your commercial landlord or tenant is crucial. Good communication oftens helps to avoid any lease disputes over outgoings. Thirdly, you are also well advised to keep accurate and up-to-date documentation to avoid a lease dispute.
If you need help understanding how to avoid a lease dispute over outgoings, 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.
Frequently Asked Questions
A commercial lease is a legally binding contract between a business owner and a property owner. This agreement allows you, as the business owner, to occupy the property owner’s property in exchange for rent.
Outgoings in a commercial lease are the costs an occupier or owner incurs in connection with the commercial premises.
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