Landlord & Tenant
Our commercial property team acts on behalf of a range of commercial landlords, negotiating, drafting and securing the best interests of our clients in their business dealings. We have excellent relationships with a range of property professionals, and will advise our clients on the best use of the experts in the field, bringing practical common sense advice in all situations.
We have set out some of the frequently asked questions below.
1. What is a commercial or business lease?
Commercial business leases are for the purposes of security of tenure governed by the Landlord & Tenant Act 1954 (“the Act”) and must be leases of fixed term of over six months or where the tenant has been in occupation over twelve months. Furthermore, the tenant occupying the premises must be occupying for the purpose of a business. There are exclusions such as tenants-at-will or contracting out tenancies but the Lease does not necessarily need to be in writing for it to qualify under the Act.
2. What is security of tenure?
This provides a certain amount of protection to the tenant to prevent him being evicted at the end of the fixed term (if over six months) or if he has been in occupation for over twelve months. The Landlord, in order for him to regain possession, must serve notice under the Act specifying one or more grounds as to why he opposes the renewal of the Lease. These can be anything from the tenant’s poor history in observing the covenants under his Lease to the Landlord showing as a firm and fixed intention to redevelop the property or if he has owned the property for more than five years then he wishes to use it for his own use and occupation.
3. What is my compensation for leaving the property if I am forced to go?
If the Lease is a protected tenancy then you will be entitled to a sum equal to rateable value of the premises or if you and your predecessors in title have been in occupation for more than fourteen years then you will be entitled twice the rateable value. No such compensation will be payable under this heading if the Lease was excluded from Part II of the Act.
You may also be entitled to compensation for any tenant improvements that you have carried out during the term of the Lease if these were permitted at the time they were carried out and not paid for by the Landlord, for example, by virtue of a rent free period and furthermore that the Lease does not exclude compensation at the end of the term for improvements.
4. How do break clauses operate?
This depends first of all as to whether the Lease falls within Part II of the Act or not for the purposes of security of tenure. If the break clause is a Landlord’s break then if the Lease is within the Act not only must he serve notice to terminate the Lease in accordance with the provisions of the break notice, but also he must show grounds upon which he can then end your security of tenure as identified above. In other words, he has two hurdles to jump. A tenant, on the other hand, needs only to serve the notice to end his lease and providing that he satisfies the conditions of the break notice (e.g. that he is not in breach of any of the covenants of the Lease at the time the notice was served or expired depending on how it is worded) then the Lease will end automatically. If the Lease is not protected by the Act then the Landlord needs only to serve the notice to end the Lease in accordance with the terms of the break clause.
5. What about the Timing of a Break Clause – for example to coincide with a Rent Review?
If the break clause, from the tenant’s point of view, is timed to coincide with rent review, it is worth remembering that more often than not rent reviews are not settled before the time that the notice under the break clause has to be served. The tenant will therefore not know whether the outcome of the rent review will be before he has to make his decision as to whether to serve the notice or not. Once a break notice has been received by a tenant – it cannot be retracted without the consent of the landlord. Better therefore to time a break clause one year after the rent review date as the Landlord will then know that if the rents are pushed up too high the tenant will more than likely serve his notice to break the Lease.
6. What happens when the Lease has ended if the Landlord then serves a Schedule of Dilapidations upon me as the outgoing tenant?
This is often the case that Landlords fail to serve what is known as a Terminal Schedule before the Lease is ended thereby at least setting in train a mechanism for the Landlord and tenant to agree as to what works need to be done before the Lease has expired. The difficulty is that after the Lease has ended the tenant is not in a position to go back and do the works and the Landlord is therefore looking for compensation for him to carry out the works instead. The tenant will argue this is unfair because he could have it done cheaper more often than not than the Landlord doing it himself. Moreover, there is a suspicion that the Landlord will take the money has a “windfall” rather than actually put the premises in good repair and decorative order.
From a tenant’s point of view he should not sit back and do nothing and await for the Lease to end. The covenant to repair is a continuing obligation throughout the term of the Lease and a prudent tenant would at least three months before the Lease has ended have carried out such repairs as may be needed and redecorated the property (as is so often required on the terms of the Lease it must be repainted in the last year of the term) and then call the Landlord in to obtain his approval to what has been done. This also enables the Landlord to remarket the property in good condition. The problem arises, however, if the Landlord and tenant are arguing over the terms of a new Lease and the tenant does not want to spend the money that he would otherwise not have to do so if he was to stay in occupation. In that situation if the Tenant remains in occupation after expiry of the Lease but decides not to renew his lease he will still have to give the Landlord a “Quarter’s” notice so he will have an opportunity to carry out repairs at that point.