Financial & Legal News

INSIGHT: Five common errors with commercial leases

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In a recent seminar held jointly between Pearson Solicitors and Chartered Surveyors, Breakey & Nuttall, lawyer Karen Piontek spoke on leases and gave her top tips to the assembled audience of commercial property owners and landlords

 

1. RENT REVIEW CLAUSES (i.e. an option to increase rent during the term of a lease).

  • A rent review clause should be in all long term commercial property leases.
  • Without it, a landlord is likely to get tied into a long-term lease without the ability to periodically increase rent.
  • It is advisable for the rent review to take account of inflation and other market forces.

It is essential to have this clause drafted by a qualified lawyer to ensure it is enforceable and that the landlord does not make a loss on a property over a period of many years.

 

2. REPAIR AND MAINTENANCE OBLIGATIONS in a lease

  • This is one of the most common areas of dispute between landlord and tenants as to who is responsible for maintenance and repair of a property.

Again, I cannot stress enough the importance of getting the drafting of this clause exactly right.

  • It is more beneficial for a landlord to have a clause within the lease requiring the tenant to keep the property in good repair and condition and;
  • For the tenant to return the Property in good repair at the end of the lease.
  • If the lease does not correctly explain the repair and maintenance obligations, it can lead to a lengthy and costly court claim.

 

3. FORFEITURE (this is the clause within a lease that would expressly state how a landlord is able to gain possession of a property and bring the lease to an end).

  • For example this could be; if tenants fail to pay the rent or breach other obligations or covenants within the lease.
  • However, the landlord’s right to forfeit the lease should be expressly set out in the lease document. If this is not dealt with in the lease, it could result in expensive court proceedings while the landlord attempts to get the tenant out.
  • Therefore it is important to forfeit lawfully and in accordance with the terms of the lease.

 

4. SECURITY OF TENURE.

  • The Landlord and Tenant Act 1954 allows for a tenant to remain in the property and request a new lease once the old lease has come to an end.
  • A landlord may want contract out of the Act and to remove a tenant’s rights of statutory renewal so that the property and its future development and use has a degree of flexibility.

If a landlord wishes to contract out of the ACT then he MUST follow a set procedure to exclude the ACT which includes serving a formal notice on a tenant together with a statutory declaration for the tenant to sign in the presence of an independent solicitor.  This must be done before a lease is signed.   I have seen this time and time again when a landlord has tried to this themselves rather than taking legal advice.

  • And if done incorrectly it is simply not effective.

 

5. LEGAL FEES AND OTHER COSTS

  • To protect against incurring unnecessary or unwarranted costs, commercial landlords are able to have it written into the lease that the tenant has to cover their legal and other costs on any consents or variations to the lease.
  • However, a landlord is only entitled to these costs if the lease expressly states this. Again the wording must be watertight to enable costs to be recovered.
  • It is all too easy for property disputes to arise through poorly-drafted or missing clauses within the written lease. Landlords should always ensure that proper legal advice is sought before entering into any lease

 

To make sure your lease is correct or to just get information and advice on commercial property issues contact us on 0161 785 3500

Please note that the information and opinions contained in this article are not intended to be comprehensive, nor to provide legal advice. No responsibility for its accuracy or correctness is assumed by Pearson Solicitors and Financial Advisers Ltd or any of its members or employees. Professional legal advice should be obtained before taking, or refraining from taking, any action as a result of this article.

This blog was posted some time ago and its contents may now be out of date. For the latest legal position relating to these issues, get in touch with the author - or make an enquiry now.

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