Why you need a solicitor for a short-term commercial lease
Understandably, after having taken on a short-term commercial lease you want to avoid any unnecessary expenses, especially if you need to refurbish. Many businesses therefore decide not to hire a commercial lease solicitor to examine a short-term commercial lease (under 7 years) as the lease won’t need to be registered with the Land Registry. However, having a commercial lease solicitor check the commercial lease terms is essential if you want to avoid expensive problems cropping up with your lease in future.
Why do I need a commercial lease solicitor for a short-term commercial lease?
Commercial leases which are 7 years or more in length need to be registered; as a result, many businesses assume that they don’t need a solicitor to check their short term commercial lease. Huge mistake! Generally speaking, the commercial lease terms will have been written either by a solicitor or with a solicitor’s input, rather than the freeholder alone. Unsurprisingly then, there’s a high chance that its terms are going to favour the freeholder, but the terms may well be worded in such a way that potential problems are harder to spot. With the amount of information there is to check through before signing a commercial property lease, it’s highly likely that someone unexperienced will miss something which could end up being incredibly costly later. Even a short-term commercial lease with onerous terms could have long term damage onto your business. Most commercial property leases typically have exit clauses which will require you to pay some sort of fee to leave the lease early, which could leave you paying extortionate amounts just to assign the lease to someone else. Furthermore, even if you’ve signed a lease for just 7 years or less, if you’re having to pay escalating or unfair ground rents and service charges, that could be 7 years of impact on your company’s profits. With a commercial lease solicitor, you know that the lease has been checked over by an expert working with your needs in mind. Prevention is always better than the cure, as they say; the legal fees will almost certainly be a fraction of the price you would be paying for any issues in the lease that were missed.
What are common commercial leasehold problems that could affect me?
Here’s a breakdown of things which can (and do!) catch business owners out in commercial leases:
Disrepair
Many commercial property leases will contain a clause which obliges you to keep the property in “good condition;” what is not made clear is that you will often be expected to do this even if the property wasn’t in good condition in the first place. Consequently, you may be obliged by the lease to leave the property in a better state that it was in when you signed the lease, meaning you’d have to fund improvements that would benefit the freeholder more than they would benefit you in the long run. If you don’t do this, the landlord could raise a dilapidation claim against you when you leave the property – and no matter how unfair the terms were, they’d be likely to win. Our commercial lease solicitors can help you understand the full extent of the requirements and negotiate better terms for you should the proposed terms be unfair.
Rent Clauses
Low rent charges could seem like a bargain – until you find out that the lease gives landlord free reign to increase your rent as they see fit. Not only would this cause your businesses’ finance to take a severe hit; it will be incredibly difficult to find someone to take over the lease from you if you decide to assign your lease. For this reason, it is essential to have an expert examine the terms in your lease and warn you if there would be a problem.
Exit clauses
An informal lease extension could be a great way to save money on your lease extension, plus you’ll be able to extend further than the statutory 90 years you can extend by with a Section 42 Notice. However, it is vital that you check that the premium you’re being offered is actually a fair deal, or whether you’d pay a smaller premium if you took the statutory route. It is advised you instruct a qualified surveyor to suggest a figure you could expect to pay for a statutory lease extension in order to have something to base your negotiations on.
Assigning or subletting a commercial lease
It may well be easier (and better for everyone involved) to assign your commercial lease or sublet it to someone else, rather than trying to end the lease entirely. Unfortunately, as you likely expect, there might be terms in the lease which dictate whether you can do this or who you can assign/sublet your lease to. Usually, a commercial lease will require the current leaseholder to find a tenant to assign the lease to themselves and may state that the current leaseholder is liable for damage caused by the tenant. If the current tenant wants to sublet their property, the freeholder may charge a fee or include other stipulations, such as preventing certain businesses operating from the premises. Our commercial lease solicitors can advise you on these terms.
Security of Tenure
Commercial property Leases covered by the Landlord and Tenant Act 1954 usually contain what is known as “security of tenure” which gives you the right to renew your commercial property lease unless your freeholder has reasonable grounds to refuse. Your lease will likely not openly tell you whether or not it would be covered by this act and will, plus it could contain a clause that contracts you out of the right to renew your lease. If the property proves to be in an advantageous location, you will likely be disappointed to find out that you have no automatic right to extend your lease. Our commercial lease solicitors will be able to explain to you whether or not your commercial property lease would be covered by this act, advise more on reasonable grounds for refusal and explain to you the full implications of being “contracted out.”
Your Right to make refurbishments
Just as your commercial property lease could demand you fund refurbishments as part of keeping the property in “good” condition, it may also prohibit you from making certain changes to the property without the freeholder’s consent. For example, leases will typically prevent the tenant from cutting through external walls or removing windows without the freeholder’s consent. This isn’t necessarily a cause for concern in leases; most leases will impose some restrictions and they are generally not a problem. However, should you want to make a change to the property that would be prohibited by your lease, our solicitors can help you request a licence for alterations to your lease from your landlord, which would allow you to make these changes. You would also need to vary the lease to reflect the changes – more on this below.
How SMB Solicitors can help?
No matter how much you like the look of a property, it’s important to check it isn’t too good to be true. Our commercial property lease solicitors will work in your best interests to make sure the proposed lease will benefit your business, and help you conduct informed negotiations if necessary. To book an appointment, email us info@smbsolicitors.co.uk.
