If you are interested in taking a commercial property, you will need to know if you are taking an assignment of an existing lease or entering into a brand-new lease. Whilst the process of buying an existing lease and taking a new one is quite different, there are several points of principle common to both types of transactions that you should consider.
Every lease (new or existing) is different, but some key things to look for are:
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Demise
It is important to clarify which areas of the building you will occupy. An existing lease will set out the extent of the premises, and you must be satisfied that you will take over all of the land that you are expecting to. Similarly, when you are taking a new lease, you must satisfy yourself that the Landlord is proposing to grant you a lease of all the land you will need. Consider whether the demise is to include any car parking spaces or other ancillary areas (such as dustbin areas, etc.).
Importantly, check whether the new lease or the existing lease is of the whole or part of a building – this may impact your obligations to repair (see below).
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Rent
You will want to know how much the rent is, when it is due, and if there is a rent review. You should also check whether the rent (and other sums owing under the Lease) are subject to VAT.
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Term
It is important to know how long you are committed to the lease for.
If you are buying an existing lease, it may include the right to extend the lease at the end of the term. It is important that you understand whether a new or existing Lease is inside or outside the security of tenure provisions of the Landlord and Tenant Act 1954. When negotiating a new lease, you should consider whether you will need (or want) the right to renew it at the end of the term.
You should check to see if there is a break clause. If there is, who can break the lease – you, the Landlord or both?
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Permitted Use
It would help if you considered what you want to use the property for and then checked that the lease permits this. If the permitted use in an existing lease does not match your intended use, you will need to check if a clause in the lease allows you to change the permitted use, and check with the local authority that they would agree to such change. If you are taking a new lease, you will need to ensure that you agree to your proposed use with the Landlord and get them to confirm that the Local Authority authorises your use.
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Repairs
Check the repairing provisions in an existing lease and consider the following when negotiating a new lease – who is responsible for repairing the property?
If the Lease is for the whole of a building, you likely will be responsible for repairing the whole of the building (including structural parts like roof, foundations, etc.). If you are taking (or buying) a lease of part of a building, it is likely that you will be responsible for the repair of the interior parts of the property and that the Landlord will be responsible for the repair of the structure. In this case, the Landlord will likely recover the repair cost from you by way of a service charge.
If you are to ‘put the property in repair’, you are taking on the responsibility to ‘put and keep’ the property in repair. This means that the Landlord could ask you to carry out works in relation to any disrepair that existed before you took the lease.
If you are to keep the property in ‘good repair and condition’, this is more onerous as you can be required to carry out works to the property, even where there is no disrepair.
When buying a new lease, you could seek to limit your repairing responsibility when negotiating the terms of a lease by doing a schedule of condition to show the current state of the property. It would then be agreed that you keep the property in the condition you took it on and not put it into a better condition.
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Alterations
You will want to note whether you are permitted to make alterations to the property and if this affects your plans for the property. In particular, do you want to make structural alterations? Does the lease permit these? If you are buying an existing lease, it would be helpful to find out whether previous tenants have carried out alterations already – you may need to remove the modifications at the end of the term.
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Transfer or Underletting
Most commercial leases allow tenants to transfer their lease or underlet to a third party, but only with the Landlord’s prior written consent and subject to certain conditions. You should check what is permitted under the lease.
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Insurance
Landlords often insure the property, and tenants reimburse the Landlord for the policy premium. Again, you should check the lease as every lease is different.
Commercial Property Solicitors
If you have any questions about the points discussed in this article, please get in touch with Adrian Jones (adrian@gordonsols.co.uk), or Kathryn Johns (kathryn@gordonsols.co.uk), or enquire through our website.
Please note that the contents of this article do not constitute legal advice and is not to be relied upon in any particular scenario. We advise that you seek independent legal advice about your particular circumstances.