It is usual practice for a landlord’s agent to negotiate the main terms of a commercial property lease with a proposed tenant. Once agreed the agent will record those in a document called “heads of terms”. Solicitors then use the heads of terms to draft the lease.
It is important for both landlord and tenant to understand and be aware of the main terms. Below is a list of some of the main terms and points to consider.
Rent – the parties should agree on the amount, when it is payable and the method of payment. The Landlord may also want to consider whether or not a rent deposit is needed. This would act as security in the event of the tenant breaching any of its obligations in the lease. The Tenant may want a rent free period to assist with the costs of any fitting out works to the property.
Term – the length of term should be agreed.
Break – the parties should consider whether they want the right to break the lease early and if so when this right can be exercised, the length of notice to be given to the other party in order to exercise it and if there are any conditions. The Tenant may argue against any conditions and require reimbursement of any rent paid in advance beyond the break date.
Repair – what is to be repaired needs to be agreed carefully. Disputes often arise in connection with the repairing obligation in a lease. Is the tenant to be responsible for the interior and exterior? Is the Tenant’s obligation to “fully repair”, which means putting in repair anything that is already in disrepair at the start of the lease. Tenants would be advised to negotiate an obligation to keep in the same state of repair as at the start of the lease and to have a photographic schedule of condition to record this.
Alterations – tenants often need to carry out fitting out works at the start of the lease. The parties will need to consider this plus whether the tenant should have the right to carry out further works to the property during the term of the lease. With short term leases it is standard for landlords to agree to the tenant carrying out internal non-structural alterations subject to their prior written consent (not to be unreasonably withheld) but not to the carrying out of external or structural alterations. Tenants should note that Landlords will require their costs to be paid in connection with any request made to the Landlord for its consent to any alterations during the course of the term.
Subletting and Assignment – the parties need to consider whether the tenant can sublet all or part of the lease or assign (transfer) the lease to a third party and the conditions for doing so. It would be unusual for a Tenant to have such rights in a very short term lease but otherwise parties usually agree that the Tenant can sublet whole (not usually part) and assign the lease to a third party subject to the Landlord’s prior written consent not to be unreasonably withheld . One of the standard conditions for consent to assigning (transferring) a lease is that the Tenant acts as guarantor for the new tenant. Again Tenants should note that Landlords will require their costs to be paid in connection with any request made to the Landlord to approve a subletting or assignment
Security of Tenure – careful consideration should be given to whether the Tenant shall have security of tenure. If the Tenant has security of tenure it will have the right to a renewal lease at the end of the lease term on broadly similar terms (subject to certain statutory exceptions). If the Landlord wants more flexibility in dealing with its property at the end of the lease term, it will want to exclude security of tenure.
Please contact Russell & Co’s experienced Commercial Property Department for further information or assistance in connection with the granting or taking of a commercial lease.