What is a lease?
A lease is a legally binding agreement that is made between the legal owner of land (the Landlord) and a willing person who, in exchange for the payment of a “Premium” or “Rents” obtains exclusive possession of the whole or part of the Landlord’s land (the Tenant).
What does a ‘Use Class’ mean in relation to a commercial property lease?
Commercial property comprises several different sectors, which includes offices, medical, retail, leisure, pharmaceutical, warehouses and other industrial properties to name a few. Each type of commercial property will usually have a designated “Use Class” prescribed to it, either through historic use or by reference to planning permission.
Given the varying nature, purpose and location of a property, different provisions within a lease may be needed. For instance, a lease for a dentist may need special provisions relating to insurance requirements to store gas canisters on site.
What is typically consistent in all commercial property leases?
A standard commercial property lease will have express provisions relating to the term, rent, service charge, insurance, repair, condition, alterations, alienation and permitted use.
What impact does the Term of the lease usually have on rents?
The Term of the lease is the period for which the lease is granted. A longer lease (99 years) will usually be granted in exchange for a Premium (being a cash payment upfront) and thereafter the obligation in relation to rent will be low. In shorter term leases (up to 15 or 20 years) there is not usually a requirement for a Premium to be paid, but the rents required to be paid on an annual basis are usually much higher.
What about repairs and maintenance?
Core to a commercial property lease is the obligation upon the tenant regarding the repair, maintenance and condition of the property and associated to this, what changes (if any) the tenant is permitted to make to the property.
When a lease ends, the ownership will revert to the landlord. The landlord will not want to receive back from the tenant a property that is in a worse state of repair and condition than that which it granted to the tenant – in some instances the landlord will require the tenant to improve the repair and condition of the property (dilapidations).
This can be an area of contention between the landlord and tenant, particularly at the end of the term, so it is vitally important at the outset of entering a lease that the tenant knows exactly what its obligations are when the property is returned to the landlord.
What are Alienation provisions?
The Alienation provisions of a lease detail the ability to which the tenant can assign or underlet the whole or part of the property to a third party, charge the property to a lender or share occupation of the property with a group company. The landlord will eventually regain possession of the property and therefore will want to be kept informed as to whom is in use of the property and who may obtain an interest over it.
The Alienation provisions of a commercial lease will usually require the landlord’s consent – especially where the lease is for a shorter period. If the lease is for a longer period, then the landlord may be more relaxed on certain parts of the alienation, such as underletting – but with provisions restricting what the tenant can do when the term of the lease is nearing its end.
The landlord will also want to control how the property is being “Used.” This will be prescribed in the lease together with what it cannot be used for.
What variations are there within leases for distinct types of commercial property?
The variations from one lease to another depend on several factors, but most will be in connection with the provisions referred to above.
For example, warehouse leases typically involve the tenant maintaining the building itself but contributing to shared maintenance costs for the surrounding estate. Office leases focus on the landlord maintaining the building, with the tenant’s responsibility limited to their internal space. Retail leases, like restaurants in shopping arcades, might include shared maintenance costs but could differ in its rent structure. These leases may tie rent to the tenant’s sales revenue, requiring additional provisions for calculating and verifying those figures.
How 3CS can help
A commercial property lease is not a “one size fits all.” At 3CS we want to get to know our clients so that we can understand their needs and requirements. We are passionate about providing you with bespoke advice, from assisting with the negotiation of the heads of terms through to completion and beyond.
For legal help and advice concerning your commercial lease or building or any property-related legal matter, please get in touch with your usual 3CS contact.