East London Solicitors

What is security of tenure for commercial leases ?

Security of tenure is a statutory right given to commercial tenants by the Landlord and Tenant Act 1954. In simple terms, subject to complying with the appropriate procedures and some defences to renewal available to a Landlord, the starting point is that a tenant does have a right to renew a commercial lease on similar terms on expiry of the lease. This is generally a valuable right for a tenant. It is open to the Landlord & Tenant to agree that the tenant will give up the right by a procedure at the beginning of the tenancy, before the leases is finalized. This may form part of the negotiation for the grant of any new lease.

Does assignment of a lease release the existing tenant from all liability ?

Generally not, because a Landlord will generally insist on the outgoing tenant providing an Authorised Guarantee Agreement (AGA) before allowing the assignment and many leases include a clause allowing the Landlord to refuse the assignment unless the existing tenant provides an AGA. The outgoing tenant will therefore be guaranteeing the incoming tenant’s obligations. At the very least, if you are an existing tenant you should seek to negotiate a cap on the AGA in terms of length of time or total amount guaranteed.

What payments over and above rent will a tenant commonly have to pay ?

This very much depends on the type and size of building. Commonly a tenant will have to pay service charge, which will include contribution for insurance for the building, but in an office block, service charges can include many other items such as maintenance of lifts, staff costs, security and such like. Tenants should also be wary of any lease terms requiring contribution to keep a building in repair. With old buildings, roof repairs and such items can be very expensive indeed. Generally, when negotiating use your common sense. The longer the lease, the more reasonable it is for long terms commitments. Remember that service charges can be capped and essentially everything is negotiable, so if you must give way on some items, seek to extract concessions on other items. A good commercial property lawyer will guide you and act as negotiator for you. A letting agent may claim to be impartial but is duty bound to represent whoever pays him/her/them.

Do all commercial leases need to include a plan ?

If the lease needs to be registered at the Land Registry, it must have a plan. Even if it doesn’t have to be compulsorily registered at the Land registry, we always recommend a plan to provide certainty for both parties. If a lease plan is required for Land Registry purposes, a professionally drawn plan will be needed and this must be to land Registry specifications. Your lawyer will be able to guide you as to who can be trusted to get this done properly, otherwise you may well be wasting money as a Landlord trying to get this done yourself.

I have the right to renew under the Landlord & Tenant Act 1954. On what grounds might the Landlord try to oppose renewal ?

It is not easy for a Landlord to oppose a renewal, but the statutory grounds include :-

• Landlord intends to redevelop the property
• Landlord intends to occupy property
• Based on persistent breaches of the lease by the tenant

As with the requirements for the tenant to comply with procedurally to be able to renew under the statute, the Landlord similarly must comply with the correct procedures and timescales in order to be able to try and defend a renewal. Procedure is very important in this area.

What kind of practical matters should I consider if considering taking a new lease ?

• What does the lease say about assignment (sale) of the lease, in particular does it require the selling tenant to guarantee the new lessees obligations ? if so, can it be negotiated out or restricted ?
• What is the position on subletting
• What is the position on service charges ?
• Are the provisions fair relating to internal alterations and consents
• Has a break clause been considered and/or agreed
• Is the lease contracted in or contracted out of the security of tenure rights under the Landlord & Tenant Act 1954
• Will you be able to access the building whenever you like or are there restrictions?
• How secure are the premises? Are there CCTV cameras and alarm systems, are there physical entry barriers? Can you put them in if you feel you need them?
• Are there any hidden or unknown costs in the lease ?
• Is there a possibility of more space if your business grows ?

What is forfeiture ?

If a tenant is fundamentally in breach of the lease, most commercial leases will provide that the Landlord may forfeit it. In other words, forfeiture is termination of a lease. The difference between commercial leases and residential leases is that, with a contractual right in the lease to forfeit, typically based on rent arrears, a Landlord may choose to forfeit the lease and even change the locks, without a court order, although most solicitors would strongly advise against this. If the breach is anything other than based on non-payment of rent, the landlord must serve an appropriate notice specifying what the breach is and giving the tenant a reasonable time to remedy the breach.

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