New Commercial Leases – FAQ
I AM GRANTING A NEW LEASE, WHAT DI I NEED TO THINK ABOUT
Normally when you are selling a property your concerns are, am I getting the best price, can the buyer find the money and when, however, when you are letting a property you are entering in to a long term relationship with a tenant, so there are lots more factors to consider. The main ones we at Craven Wildsmith look at are
WHAT AM I GOING TO LET?
This may appear obvious, however you need an accurate description, and if the lease is to be registered a land registry compliant plan of exactly what you are letting needs to be prepared. Questions to say yourself include does the property include a basement, forecourt, yard, parking, are there any shard areas, is any special access needed. Do any special rights need to be granted (E.g. satellite dish, air conditioning platforms, remote storage areas, signage etc.) or reserved?
ARE THERE ANY SHARED PARTS?
If there are shared areas or services you will need to consider if it’s significant, if so you may need to consider a service charge or some other method of recharging the costs.
DO I NEED A SOLICITOR?
A reputable solicitor will prepare a lease that will protect your interests, if you don’t have a solicitor Craven Wildsmith are happy to recommend one.
BUT WHO WILL PAY.
Historically the tenant paid the landlords legal cost, however, this is becoming less common, these days either each party will pay their own costs or the tenancy may pay a contribution towards the landlords costs.
WHO SHOULD THE BE TENANTS?
This is the crucial question; remember the tenant hasn’t just got to pay the rent they also have to look after your investment property. So is the tenant going to be a sole trader, partnership, limited company or other incorporated body? Whoever it is you need to be satisfied they will be able meet their obligations, if you are unsure you should look for additional security. Craven Wildsmith can obtain credit searches and advise on the forms of additional security that may be available to you. The landlord will need comply with Money laundering regulations with regard to the identification of the tenant?
HOW LONG SHOULD THE LEASE BE FOR?
Lease lengths are getting shorter; Craven Wildsmith can advise what you can expect for your property. Many new leases are contracted out of the security provisions of the 1954 Act and include an option for the either the tenant or both landlord and tenant to end the lease generally at a per-determined time.
CAN YOU EXPLAIN WHAT YOU MEAN BY THE SECURITY PROVISIONS AND CONTRACTING OUT?
The 1954 Landlord and Tenant Act gives the commercial tenant security at the end of his lease. At the end of a lease the tenant has the right to continue to occupy indefinitely until either the landlord or tenant give notice. The landlord can give notice that either offers the tenant a new lease, or alternatively the landlord can refuse to grant a new lease but he has to prove one of the grounds set out in the Act. Since 2004 the Regulatory Reform (Business Tenancies) (England and Wales) Order 2003 has made it much easier for the landlord and tenant to agree before the start of the lease to “contract out” of the security provisions of the 1954 Act. At the end of a contracted out lease the tenant will have no right to a new lease.
For further information on the Landlord and Tenant Act 1954 see our notes on lease renewals
HOW DO I KNOW WHAT RENT TO CHARGE AND WHEN SHOULD IT BE PAID?
We at Craven Wildsmith will discuss the rental value with you as part of our letting service, if you want to know how much rent to charge without us letting the property for you we can, for a moderate fee, carry out an assessment for you. For further information on valuations for rent and other purposes see our notes on valuations and surveys. Traditionally rents were paid quarterly or three monthly in advance, now monthly is becoming the norm. Don’t forget there should be a penalty interest rate for everything that’s paid late.
MY TENANT IS ASKING FOR A RENT FREE PERIOD, WHAT’S THAT ALL ABOUT?
It’s happening more often, a rent free period can either be an incentive for the tenant to do the deal or it can be to allow a tenant to do approved works, alterations and fitting out often it’s an element of both. But be careful not to compensate a tenant for alterations that are just for their benefit, it’s different if it’s something that will stay with the property and benefit future tenants. NOTE when giving a rent free period you must agree who’s going to pay the outgoings including service charge, insurance rent, rates outgoings etc. MAKE SURE YOU TAKE METER READINGS
OK SO HOW LONG SHOULD I GIVE THEM?
It depends mainly on the demand for the property (the incentive bit); how long the works are going to take (time to allow them to do the works) and how much the tenant is spending that will be of long term benefit to the landlord after the tenant has gone. Craven Wildsmith can advise as part of their Lettings service.
YOU MENTION INSURANCE RENT PLEASE EXPLAIN it’s normal for the Landlord to insure the buildings, to make sure it’s done, and the tenant to pay the costs back to the landlord. It’s also usual for the insurance to cover loss of rent and include a clause to say the tenant doesn’t have to pay the rent if he can’t use the property due to an insured loss.
WHATS A RENT REVIEW?
See our notes on rent reviews here. LINK
WHO REPAIRS AND DECORATES THE PROPERTY?
Generally the tenant will be responsible for internal repairs and decoration however, if there are any problems before the start of the lease you need to agree before the start who is going to deal with the works and how. Traditionally external repairs and decorations have also been the responsibility of the tenant but this depends on the type of property. Craven Wildsmith will advise you as part of their Lettings service.
WHAT STANDARD DO THE REPAIRS HAVE TO BE CARRIED OUT TO?
This is one of the most misunderstood areas of letting; most tenants think they are responsible for maintaining the property in the condition it was in at the start of the lease. More often than not a tenant is responsible for keeping and handing back the property in good condition regardless of the condition at the start of the lease.
MY TENANT WANTS A SCHEDULE OF CONDITION, WHAT’S THAT ABOUT.
Often it’s not reasonable to expect the tenant to improve the landlord’s property (see WHAT STANDARD DO THE REPAIRS HAVE TO BE CARRIED OUT TO?). In these cases the tenant may well want a schedule of condition. This is a report, prepared by the tenant but agreed by both parties that show the condition at the start of the lease and the lease is acted to say the tenant only has to maintain the property in the condition it was in at the start of the lease.
MY TENANT WANTS TO ALTER MY PROPERTY IS THAT OK?
It depends, yes it can be done, but depending on the type and size of the alterations it’s probably best if you have a licence to document the agreement. The licence should cover things like what happens at the end of the lease, do the alterations need to be removed and any damage made good or can they stay. It will also cover things like who is responsible for complying with laws such as the Regulatory Reform (Fire Safety) Order 2005, planning, building regulations etc. It’s also essential to protect the structural integrity of your investment.
WHY SHOULD I RESTRICT THE USE OF THE PROPERTY?
It gives you some control, but it’s most important if you have a number of neighbouring properties and want to control competition so you can give one type of property exclusivity.
WHAT IS ALIENATION?
This is a general term that describes the different ways the tenant may dispose of, or sell their interest in either part or the whole of the property or part of the remaining term of the lease.
There are two main ways the tenant can do this.
They can assign their lease, if this happens the tenant is trying to transfer the whole of the lease to a new tenant, in certain circumstances if an Authorised Guarantee Agreement is included in the lease the original tenant may still have some ultimate responsibility, but the landlord will need to check the proposed new tenant in a similar way to the original tenant was checked.
Alternatively a sub-lease can be proposed, this is where your tenant creates a new lease of either the whole or part of the property they rent for a term shorter than the term of the original lease, it may be as little as a few days shorter. Your relationship with the original tenant will remain, however, you should check the terms of the sublease to make sure it doesn’t include any provisions that would be detrimental to your interest.
An alternative that may be considered in certain circumstances is the surrender of the old lease and the simultaneous grant of a new lease to another party
The landlord needs to retain control, so the lease needs to be drafted in such a way that the landlords consent is required for any of these transactions. NOTE there is a lot of law regarding the landlord’s ability to delay or withhold his approval, see notes on assignment and subletting.
Do I need an agent?
You don’t need an agent; however, an experienced commercial property agent will help you achieve the best outcome from each transaction
So why should I use Craven Wildsmith?
We are qualified
We are experienced
We know what we are capable of and only act within our areas of expertise Neal Craven our lead surveyor starred work as a commercial surveyor in the region in 1986 he is a assessor for and fellow of the Royal Institution of Chartered Surveyors (RICS). “the world’s leading professional body for qualifications and standards in land, property and construction” The RICS say “Only members who are major achievers in their careers may apply to become a fellow of RICS. They will be leaders in the profession; active people who have completed unique projects or contributed to the profession”
Our property is out of your region, how do we find a compliant surveyor?
You should look for a member of the RICS; they have a find a surveyor service at http://www.ricsfirms.com/ .
The above are general observations, each lease is different and these points are not intended to replace specific advice from a qualified and experienced professional. For independent advice contact
Neal Craven MSc FRICS IRRV
Craven Wildsmith Property Professionals
41 Nether Hall Road, Doncaster DN1 2PG
Office 01302 36 86 86
Fax 01302 215939
Mobile 07702 040 660
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