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Commercial leases – a guide

Work patterns have changed for many people since the beginning of the pandemic with millions of people now working from home. As lockdown restrictions ease many businesses are slowly moving back into their commercial premises, so it is sensible for business owners to review their property needs and requirements going forward.

Here are some frequently asked questions about commercial leases to help guide with your decision making.

My lease is coming to an end within the next 12 months but I’m not sure if we want to stay or move?

You can end the tenancy by moving out of the premises by the end date specified in the lease. If you are unsure about your future business plans you could discuss options with the landlord. They may allow you to remain in occupation as long as you continue paying rent and give say three months’ notice to end the tenancy.

Now could also be a good time to negotiate a new lease on more favourable terms so take legal advice to discuss your options.

I want to find a smaller business premises as most of my team are now working from home, can I just end my lease?

Firstly, check if your lease has a break clause which allows either you or the landlord to end the lease at a specific date without waiting for the full term of the lease to expire. If you want to break the lease you must comply with any conditions in the lease which could include giving notice – typically six months. The landlord can refuse the break in certain circumstances, typically if you are behind with rent payments but beware, as even small breaches of your lease can provide grounds for refusal. It is important to take legal advice before exercising a break clause to make sure you get it right.

There may be other options in the absence of a break clause.

You might have the right to assign the lease or sublet to another business so they become the new tenant. This does not however completely remove your legal responsibilities or potential financial liabilities, so you should take legal advice before taking either of these steps. Failing that you can negotiate the surrender of the lease with the landlord but they will normally expect some compensation, so it might not be an economically viable option.

Be aware of your responsibilities at the end of the lease as they can be extensive. With many serviced offices you may need to carry out internal decoration or replace carpets whilst a full repairing and insuring lease might mean you are responsible for both internal and external structural repairs and maintenance. Again, it is important to take legal advice before signing a lease to understand your full obligations.

My landlord has refused to extend my commercial lease, is there anything I can do?

This depends on the type of lease you have, the length of it and if you agreed to give up the right of renewal when the lease began. Also, if you are in breach of your lease for example for not paying the rent or keeping to maintenance responsibilities. The landlord may also wish to use the premises for a different use as planning rules have recently changed to help stimulate town centres. Take legal advice to see if you can both reach an amicable agreement.

We are in discussions with our landlord who wants to increase our rent but we don’t think this is fair or accurate given the current pandemic, what can we do?

Rent reviews follow a procedure which should be set out in your lease. Normally, but not always, it is based on open market rents. If you feel the new rent being asked is too high then you can appoint a surveyor to help you to negotiate with your landlord. It is also important to take into account the cost of moving your business, adapting a new premises, the cost of new stationary, advertising, client communications etc, not to mention the cost of a surveyor, which may all be far higher than the proposed rent increase itself.

We have decided to make some changes to our business offering, do I need to check with my landlord that this is ok?

Your lease will specify what the business premises can be used for so it is important to take advice first. Many leases have clauses which prohibit any significant alterations or change of use without the landlord’s consent. You would also have to consider if your use is in line with the Use Class permitted or if you need planning permission from the Local Authority to change it.

My landlord is selling the property my premises is in, does this mean my business will have to move?

Not necessarily as you are protected by the terms of your lease. However you should be aware that if there is a break clause, the new landlord might wish to exercise their right to end the lease. They may be interested in having a discussion with you about their future plans for the property and might be willing to offer you alternative premises or a payment to end the lease early, so it is worth having a discussion with them.

Taking professional advice at an early stage can help you to successfully negotiate the best outcome for you and your business, so get in touch with our team today.

Marianne Webb is a partner at Gullands Solicitors