A Guide to Taking on a Commercial Lease

Becoming a tenant of a commercial premises can bring up various common issues that it is important to be aware of. Each lease varies depending on individual circumstances, but common issues arise out of agreements between landlords and tenants.

Becoming a tenant of a commercial premises can bring up various common issues that it is important to be aware of. Each lease is varied depending on individual circumstances, but common issues arise out of these lease agreements between landlords and tenants.

The lease is an important document that regulates the agreement to let the premises. A most often takes the form a a full insuring and repairing lease. This means, that once you become a tenant, you are then obliged to maintain the premises in a good physical condition, throughout the duration of the lease.  This means that any repairs that must be done are your responsibility and while the landlords affect the buildings insurance of the premises, it is up to your responsibility as tenant to repay the premiums for the insurance to the landlord. You should be able to obtain a copy of the buildings insurance documents from the landlord as it is important that you check over the policy and make sure that it covers everything that you require. You can take additional insurance to make sure that all items are covered, as you should note, insurance will generally cover the premises, not its contents.

As a tenant, you have a responsibility for the costs of any local authority repair notices, and for any commercial rates payable during the period of the lease. You are also responsible for most of the costs of the upkeep of the building and the running of the business.

At the end of any lease a landlord will issue a schedule of dilapidations, this is a list of repairs that are needing to be done to bring the premises back into good condition. These are the tenant’s responsibility and it has been known for a landlord to issue a list of repairs that is often overinflated in nature. Enlisting the services of a solicitor may enable you to limit the amount of work that requires to be done. You may wish to employ a surveyor to assist in highlighting the repairs that require to be done, as opposed to the list of work that the Landlord hopes that you as tenant would do to their property!

It is worth taking the time to ensure a survey of the premises is carried out before you take entry to the property. If there are any issues with the property, these will be highlighted in the survey, thus allowing these to be addressed by the Landlord prior to taking entry. This is of vital importance as when the lease comes to an end it will be your responsibility to repair any defects (even if these were already there when you took entry!), so that the premises is left in a good condition for the next tenant. It is assumed that you will take over the premises in good condition unless, it has been acknowledged by the landlord and that he will waive such defects from the dilapidations schedule. The survey of the premises will also guide you in seeking to negotiate limitations on the dilapidations.

Many responsibilities fall upon the tenant as occupier of the premises throughout the duration of the lease. These include health and safety matters, complying with building standards regulations, etc as you take over as a tenant.

Whilst it may be assumed that you personally would be the tenant, it is often preferable that the lease be taken out in the name of a new limited company instead. There are benefits to this including potential tax advantages and the placement of legal liability on the company and not on yourself personally. This risk would be placed on the company so that if the business fails and the lease cannot be continued, the landlord will only be able to enforce a legal action against the company and not you personally. However, a landlord may ask for personal guarantee for rent where a new company is being listed as the tenant, due to underlying concerns the landlord may have regarding the companies lack of assets.

At the end of a lease duration the principle of tacit relocation is applicable in situations where a landlord or tenant fails to give the appropriate notice to the other party to order to terminate the lease. In the event that no termination notice has been produced, the lease continues under tacit relocation on the same terms as agreed, including the amount of rent payable. Tacit relocation operates on a year to year basis, until the appropriate notice to terminate is given by either party.