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Agreeing Commercial Lease Terms

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Claire Cooper, an Associate Solicitor in the Commercial Property team at Talbots Law says “clients never realise the importance of the terms of their lease until their circumstances mean that they need to rely on them.  A client who signs up to a long lease term with no option to break early, and no option to assign the benefit of the lease to a third party, can find themselves in a costly situation if their circumstances or business needs change.”

Whether you are a landlord or a tenant, it’s important to understand the heads of terms you are agreeing to that will be set out in the main lease document.  Although heads of terms are not binding, they are often difficult to re-negotiate at a later stage when negotiating the main body of a lease agreement.

The Landlord and Tenant Act 1954 provides security of tenure, but if the lease is excluded from the Act, this can impact on the longevity of the business where goodwill relates to the location of the trading premises, and could, therefore, impact on the value of that goodwill.

Other considerations can be a break clause that would allow the termination of the lease early, on giving the landlord prior notice.  This can be invaluable on a long lease where circumstances may change and the tenant might wish to end the lease early to move to either smaller or larger premises in line with business needs.  Also, rent review clauses can impact on a tenant if they have carried out significant improvement works to a property during the lease term.

A particular area that can lead to costly surprises relates to the extent of a repairing covenant. Repairing obligations can have an impact either during or at the end of the lease term, when landlords look to make potential dilapidations claims against tenants for failing to carry out the appropriate level of repair in set out in their lease terms. This can result in a costly and lengthy process at the end of the lease term that many tenants do not make provision for or anticipate. The most common way to limit a repairing obligation is by reference to a schedule of condition.  This can be a detailed schedule prepared by a surveyor, or a photographic schedule - a series of photographs demonstrating condition.  Although there are cost implications for the preparation of either option, it can be money well spent when faced with a claim.

Talbots Law’s Commercial Property Team are always on hand to discuss this and any other commercial property matter - for further information, please contact Claire Cooper or call us now on 0800 118 1500.