What you need to know about commercial property leases
If you are looking to take a commercial lease or if you are looking to buy a commercial freehold, then negotiating the sale contract or the terms of the lease is an important part of the process. But there are other aspects of a commercial property lease that you should know about before you sign.
Andrew Dongworth, company and commercial solicitor at HRJ Foreman Laws Solicitors, Welwyn Garden City office talks about three important areas to consider.
Commercial property searches
If you are taking on a commercial property, you’ll need a solicitor to conduct some searches in relation to property. You want to make sure that the property can be used for your business. If it doesn’t have the required planning permissions for that, then that is going to be a problem. It could put you off the property entirely, or at the very least would require you to apply to the local authority for a change of use. The searches will also uncover any known environmental hazards or issues in or around the property.
When you work with one of the commercial property experts at HRJ Foreman Laws Solicitors, we will make all the necessary enquiries with the seller or the landlord. We will then review those replies and make sure that there are no other issues. For example, the property as advertised did not mention that there was service charge that’s payable each year. Sometimes there will be a requirement to contribute to the cost of the repairs of an estate road or an access road.
The Landlord and Tenant Act
The ability for you to renew your Lease depends on whether your Lease has the protection of a piece of legislation called The Landlord and Tenant Act from 1954.
The way you are able to renew or not is different depending on whether you have the protection of the Act or not. If you do have the protection of the Act, you will have the ability to ask the Landlord for a renewal, so the Landlord cannot ask you to leave at the end of the term. You can stay in occupation, what’s known as ‘holding over’ under your Lease and you will continue the same terms until such time as either the Landlord or the tenant takes steps to gain a new Lease. That can be done by negotiation or by the Landlord or tenant who can serve notice on the other saying that they would like to offer a new Lease.
From a tenant’s perspective, you would serve notice setting out the terms that you were willing to pay and if you can’t then agree that with the Landlord, there is the ability for the matter to go to court and the court will determine what is a fair renewal Lease and what the fair terms will be.
If your Landlord asked you to contract out of the Landlord and Tenant Act, you are not protected by it. The Landlord is entitled to ask you to vacate the property at the end of the Lease term. If you find you are in that situation, and you want to remain in the property, we strongly advise that you talk to us a few months prior to the end date of the Lease. We can then start having discussions with your Landlord and hope that we can agree the terms of the new Lease that begins immediately on the end of the existing Lease. If you are not able to agree terms, then there is some time to be able to look around for alternative premises. We can review your new Lease and we can advise you accordingly.
Transferring your lease with a business or asset sale
If you are selling your business, either as a business sale or an asset sale, your buyer will be taking on the goodwill, fixtures and fittings and assets and the Lease of the premises. The transfer of the Lease to the buyer, is known as an ‘Assignment’ of the remainder of the lease. To make this happen, we need to go back to the contents of your existing Lease. In the vast majority of Leases, you are allowed to transfer or assign the remainder of your Lease to a buyer, however, you do need to get your Landlord’s consent before you do that.
The Landlord may want to vet the new tenant to make sure that they are financially sound and that they can fulfil their obligations under the Lease. They may ask for references and copies of accounts from your potential buyer. If happy to proceed, the Landlord will then instruct a solicitor to provide a formal ‘Licence to Assign’. The ‘Licence to Assign’ gives permission to you, as the tenant, to transfer the remainder of your Lease. It may also contain conditions - you could be asked to guarantee the obligations of your incoming buyers – this makes it a more complicated process than simply transferring the Lease and professional legal advice is recommended.
For legal advice email email@example.com or call Welwyn Garden City 01707 887701, Letchworth Garden City 01462 488333, Hitchin 01462 458711
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