Commercial Property FAQ

Top nine questions Commercial Property Solicitors get asked

26/09/2023

In the world of commercial property, clients rely on commercial property solicitors for guidance on complex transactions and legal matters. In this article, we delve into the top nine questions that our commercial property team frequently get asked.

1. What are the most important terms when agreeing a commercial property lease?

By far the most important terms of a lease are rent, term, user, break clauses and definition of the property to be leased. However other terms are easily overlooked including whether the tenant can assign or sub-let, and the level of repair requirement, especially at the end of the lease term. As a tenant you will also want to know whether you will have a right to renew the lease at the end of the term.

2. Who is responsible for repairing my commercial business premises?

If you have a lease of the whole building, there is likely to be full repair liability which means the tenant is responsible for all repairs including structural parts such as the roof and foundations.

If the lease only covers part of a building, for example one floor, then your responsibility will most probably be limited to the interior shell. The landlord would be responsible for the structural parts of the building however, a tenant can still be liable for the external parts or be required to contribute towards a fair proportion of the total cost incurred in repairing and maintaining the building by way of a service charge. The shorter the lease the less responsibility you should accept. Tenants should seriously consider obtaining a schedule of condition to limit the level of repair.

3. What are the main costs involved in renting a commercial property?

Rent and all outgoings such as business rates, gas, water and electric are the headline costs. The lease usually requires the tenant to contribute towards the building insurance and service charge, so these costs should also be factored in.

A cost which is often overlooked is the cost of repairing the property as required by the repair and decoration obligations at the end of the lease. If the standard required is not achieved tens of thousands of pounds can be incurred in dilapidations which are the costs incurred by the landlord.

4. What are the typical steps in a commercial property transaction?

  • Head of terms of the lease – usually prepared by an agent and will include a list of the key terms to the lease
  • Parties to instruct a solicitor
  • Solicitor for landlord to prepare first draft lease and any supporting documents such as rent deposits or agreements for lease
  • Landlord to provide copy title and replies to standard CPSE enquires as appropriate for the transaction to the tenant’s solicitor
  • Solicitor for tenant to carryout due diligence on enquires, title and any property searches (if required) and to make any required amendments to the lease and any associated documents
  • Parties and their solicitors to agree a final version of the lease
  • Solicitor to report to client and arrange for the lease and any associated documents to be signed
  • Solicitors to then complete the lease and any associated document
  • Keys to be released
  • Tenants’ solicitor deals with post completion requirements such as SDLT and registration.

5. My commercial property lease is ending, does the Landlord have to offer me a new one?

By virtue of the Landlord and Tenant Act 1954, tenants have a right to ask their landlord for a new lease on the same terms as the existing lease save for rent. However, this right can be excluded and it would then be for the landlord to decide whether they want to renew or not.

If the lease is excluded, the landlord can still renew the lease although they are not required to do so. If the lease is not excluded from the Landlord and Tenant Act 1954 there are limited grounds on which the Landlord can refuse to renew.

6. Can a Landlord increase commercial rent?

A landlord cannot unilaterally increase the rent and send you a rent demand containing new rent.

If the lease contains a rent review provision then the landlord may be able to increase the rent but the higher rent would have to be agreed by the parties in accordance with the terms of the rent review in the lease or decided by an independent expert if the parties cannot agree.

7. How do I challenge a commercial property rent review?

A properly drafted lease will cover the conditions to comply with to challenge the new rent on a review. There may also be time limits to make the challenge. The appointment of a surveyor or another expert may be necessary to determine the rent.

Rent challenges can be avoided by acting early and you could consider obtaining your own valuation report. This would give you an idea of the market rent before negotiating. Your appointed surveyor may be able to act on your behalf in negotiating the new rent.

8. Do I have to make the premises good when my lease ends?

Standard leases usually contain a clause which states the level of repair and decorative order to which a tenant must maintain the premises.

There may be a clause to ‘put and keep’ the premises in repair or a lower standard where the premises may be returned in no greater condition than that at the start of the lease. If the latter is the case, good evidence of the state and condition of the premises is by way of a schedule of condition attached to the lease.

9. What happens when a commercial lease expires?

When a lease comes to an end, it is usual for the tenant to hand back the keys to the premises with vacant possession and in a “broom swept condition” – clearing all rubbish and belongings. The lease will probably state the level of condition to which the property is to be returned.

A lease may also require you to decorate the premises at the end of the term. Care should be taken if the lease allows the landlord to obtain a schedule of dilapidations when you have vacated the premises. A schedule of dilapidations sets out any items of disrepair together with a list of costings for these to be rectified.

For more information

If you are currently going through the process of signing or renewing a lease for a commercial property and would like legal guidance, our Commercial Property team will be delighted to assist.

The above is meant to be only advice and is correct as of the time of posting. This article was written by Inderdeep Kanda, Solicitor in the Commercial Property team at Pinney Talfourd LLP Solicitors. The contents of this article are for the purposes of general awareness only. They do not purport to constitute legal or professional advice. Specific legal advice should be taken on each individual matter. This article is based on the law as of September 2023.

26/09/2023

Authors

Inderdeep_Kanda

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