Commercial Leasehold Properties

This information sheet is intended as a general guide to the legal standing of commercial leasehold properties and generally covers leases where the main financial transaction involved in them is the payment of rent rather than any sort of sale or purchase price. Because of the general nature of this sheet the information may not be applicable to every leasehold property, and you should also be aware that the law covering property is subject to quite frequent legislative change.

 

A lease will normally state that it is for a certain number of years and that it terminates on a certain date. However, as with so much involving leasehold properties, legislation may imply different terms. For a landlord to terminate a lease (unless the Landlord and Tenant Act 1954 is excluded - see below) proper notice has to be given. For a tenant to come out of a lease at the end of the lease, notice should also be given, which will normally be a minimum of three months' notice.

 

Through an old tradition rent is usually payable quarterly. Some leases state this to be payable on 1st January, 1st April, 1st July and 1st October, but many leases refer to "the usual quarter days". These dates are 25th March, 24th June, 29th September and 25th December. Although the number of days in each quarter varies, where rent is payable quarterly, then the amount for each quarter will be the same.

 

This Act gives to tenants certain security of tenure on a commercial lease. A commercial lease is where a property is occupied under a lease for the tenant's own business purposes. If a property is occupied for residential purposes then entirely different provisions apply. In order to terminate a lease, the landlord must give not less than six and not more than twelve months' notice terminating the lease. The notice has to be in a particular statutory form (otherwise it will be invalid) and must state whether the landlord has any objection to the tenant having a new lease. The objection can only be on certain grounds which are set out in the Landlord and Tenant Act 1954. If a new lease is required and has not been entered in before the date stated in the notice, the tenant has to preserve its rights by making an application to court by the date stated in the notice. If the terms of a new lease cannot be agreed then a court will set out those terms, although it is rare for this to happen.

 

It is possible for a landlord and tenant to agree that a lease shall be excluded from the security of tenure provisions of the Landlord and Tenant Act 1954. This means that when the lease comes to an end, it is finished and the tenant does not have a right to apply for a new lease. This is frequently referred to as contracting out. Prior to the start of the lease, the landlord gives the tenant notice in writing of the consequences of contracting out and then the tenant makes a declaration acknowledging that it accepts these consequences.

 

Most leases allow the tenant a right to assign its leasehold interest to somebody else. When the assignment happens then the new person becomes the tenant. However the lease will usually provide that as a condition to the landlord agreeing to the assignment, the tenant has to show that the new person (the assignee) is of sufficient financial standing to make a good tenant, and will often provide that the outgoing tenant guarantees (by a formal deed) that the new tenant will pay the rent and perform the other obligations under the lease. This means that the outgoing tenant is not off the hook until the new tenant itself assigns the lease to someone else or the lease ends.

 

The obligations on a tenant to carry out repairs to a property is one of the most burdensome of a tenant's obligations. Most leases will provide either that the tenant has to carry out repairs, or that the tenant has to reimburse the landlord for the cost of repairs. The obligation is usually to put and keep the property in "a good and tenantable state of repair" or some such wording. This goes considerably beyond an obligation to keep the property in the state of repair that it is in when the tenant takes over. If, however, it is intended that the obligation be limited in this way, this must be stated and there must be clear evidence of the condition at that time. This may require the preparation of a surveyor's report. At any time during the lease a landlord can instruct a surveyor to inspect the property and prepare a "schedule of condition" or "schedule of dilapidations" setting out what repair works need to be done. There is usually quite a short time under the lease during which this work has to be done. It is therefore important that a tenant remains aware of the condition of a property and keeps it in good repair rather than be surprised by a large and expensive repair bill from the landlord.

 

Depending on the landlord's VAT status, the rent either will be subject to VAT or will not. It is important to be clear which is to apply, particularly if the tenant is not registered for VAT.

 

Leases are, unfortunately, long and technical documents. There is no getting away from this, and although leases vary in their form and complexity, the longer a lease is, the more thorough it generally is. Often very short leases will be missing crucial points which may then provide ground for expensive disagreement later. It is important that both the landlord and tenant are aware of the contents of a lease and the document should be read carefully, in spite of its technical difficulty. A lease is generally structured as follows:

 

 

To repeat, this information sheet is and can only be general in nature, and please ask for specific information regarding your individual circumstances.