What is a Commercial Lease?

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A commercial lease is alegally binding agreement or contract between a landlord and a business tenantfor the lease of business premises. The lease grants permission to the tenantto use the premises for business or commercial activity for the agreed period.The landlord agrees to let the property with exclusive possession to the tenantwhile the monies are being paid.

A lease outlines therights and responsibilities of both parties (landlord and tenant) for theduration of the agreed term. A lease that is for a period of three years ormore must be made into a deed. This is a complex agreement that should bechecked by a qualified solicitor before you proceed and sign.

All commercial leasesare protected by the Landlord and Tenant Act 1954 unless specifically excluded,which gives the tenant the right to renew after the term of expiry. If thisprotection is waved by both parties, then the tenant can expect a reduction inrent as they will have significantly less rights without this protection.

We will now look atsome of the provisions and clauses you can expect to find in a commerciallease.

Overview of commercial lease contents

There will be generalprovisions for each of the named parties. These will include:

  • Typeof property to be let and the address of that property
  • Termof tenancy and property transfer details (demise)
  • Rentamount and dates payable (usually quarterly)
  • Typeof business that is permitted to be conducted on the premises (This must beadhered to)
  • Landlordsand Tenants covenants
  • Rightsto be granted and rights to be reserved
  • Provisionsof any security/damage deposit required
  • Definitions,interpretations and provisions
  • Anyother necessary provisions such as planning restrictions
  • andattestation (signatures)

A commercial lease may also cover thefollowing:

  • Leaserenewal provisions
  • Landlordimprovements, including any signing incentives
  • Tenantimprovements
  • Subletrules (If a sublet is permitted, the term of tenancy must be shorter than theoriginal lease)
  • Noticeperiod for termination of tenancy
  • Provisionsfor insurance

Service charge

It is the landlord'sresponsibility to maintain the common parts of any building that are used byall tenants. They will want to recover this cost with a service charge payment,so this will be stated within the lease agreement.

Repair, alterations and decoration

If the tenant wishes tomake any alterations then they must seek approval from the landlord. Thelandlord must not unreasonably withhold or delay consent.

Repairs refer to restorationsor replacement. It should be clear who is responsible for what, but the tenanthas an obligation to keep the premises in good repair. If the premises are in astate of disrepair when the tenant takes occupancy, then they are obliged toput them into a state of repair.

If the landlordrequires the tenant to decorate, then the frequency will need to be decided upand be reasonable and fair. The tenant should not be expected to re-decoratewithin the final 12 months of tenancy.

There are so many moreclauses that can be added to a commercial tenancy agreement, including breakclauses and forfeiture. We would advise that if you are a landlord or tenantlooking to enter into a commercial tenancy lease, you contact solicitors forexpert advice.

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