Dealing with commercial leases: Traps for the unwary tenant
PUBLISHED: 15:48 30 October 2018 | UPDATED: 15:48 30 October 2018
Commercial property partner at Willans LLP solicitors Alasdair Garbutt explains that tenants must be aware of their rights on expiry of their lease
Taking on a lease of a commercial premises can be a nerve-racking and confusing process for a business, with numerous traps for the unwary.
A couple of cases this summer serve as a useful reminder of the importance of careful negotiation when it comes to tenants taking on commercial leases.
In a recent High Court case, the reinstatement obligations on the tenant (in basic terms, the requirements for the tenant to ‘put right’ the premises into the condition described in the lease) were not drafted precisely enough.
The Court decided that the tenant’s break option (a provision in the lease which lets either or both parties finish it early) didn’t require them to comply with the reinstatement obligations.
This is a reminder to both landlord and tenant to ensure that any break conditions are precisely drafted, leaving no doubt about what needs to be done for a break notice to be effective.
In another court case, a tenant was trying to identify the works that it was obliged to undertake to comply with the repairing covenant in the lease. Again, this is a critical area for certainty in the lease that must be documented properly. Tenants should consider the future financial liability to comply with its repairing obligation on lease termination before they enter into the lease.
We find many tenants are often unaware of their rights when their lease expires. This is an entire subject on its own but, in short, commercial tenants should clarify before they enter into a new lease what their rights will be on its expiry. Sometimes, they will have no rights and have to vacate on the last day of the lease. Alternatively, if they have renewal rights, they can remain in occupation until either they or the landlord starts the renewal procedures, or the landlord gives them notice to vacate.
Put simply, tenants need to make sure that they are aware of all matters of potential liability before they enter into any lease. If they don’t, there is danger of not being able to exercise a break right when expected, or having to pay out large sums of money for breaches of the lease on its expiry.
Alasdair Garbutt is a partner in Willans’ Chambers-rated commercial property team, which acts for both commercial property landlords and tenants on a range of transactions from small office or shop lettings up to multi-million pound sales and purchases of high value rental leasehold properties. For responsive, clear legal advice and support, contact Alasdair at firstname.lastname@example.org or call 01242 514000. To download a fact sheet with top tips on what to look out for in a commercial lease, visit willans.co.uk/fact_sheets.