Agreeing the terms of a lease can seem like a formality, but it is important to take the time to make sure that the lease reflects what both landlord and tenant want to achieve. In the second of three guidance notes on this subject we set out some of the key terms that need to be included to deal with what happens during the lifetime of the lease.
Repair and insurance
Both landlord and tenant will want the property to be well maintained and both will have some obligation to repair. The extent of the obligation will vary depending on the type of property and exactly what is let to the tenant.
A commercial lease of a floor or unit in a larger building or development will usually exclude structural parts and the landlord will be responsible for maintaining these, as well as any shared areas and access routes. However where the landlord retains responsibility for these repairs there is usually a service charge payable by the tenant for a fair and reasonable proportion of the costs expended, so even though the tenant does not carry out the repairs the tenant still pays towards them. For example; if the area let is half of the building then the service charge could be 50% of the Landlord’s costs.
If the whole of a building is let, then the tenant may be responsible for keeping the whole of the building, including structural parts, in good repair and substantial condition.
The tenant will usually be required to keep the property included in the lease in good and substantial repair and condition, except where damage is covered by insurance. If the property is in poor condition when the lease is granted, the parties may limit the tenant’s obligation to keeping it in no worse state than at the date of the lease. An agreed schedule of condition, usually accompanied by photographs, will be attached to the lease as evidence.
The landlord will be required to insure the property, recovering the cost of the premium from the tenant. As long as the tenant does nothing to invalidate the insurance, the landlord will be responsible for repairing damage covered by insured risks, using the insurance proceeds. The lease will usually give the tenant a period free of rent if damage is so severe that the property cannot be used. Either party may have a right to end the lease if the property has not been fully repaired within an agreed time.
Landlord’s right of access
The landlord will want the right to enter the property in a range of circumstances, including to check whether the tenant is complying with the lease and to remedy breaches if the tenant fails to do so. The tenant will want to agree limits, such as reasonable notice and the right to accompany the landlord during any inspection.
Alterations and handing back the property
During the life of the lease the tenant may want to alter the property, perhaps re-configuring the internal layout or adding new heating or air conditioning. The landlord will want to prevent any damage to other parts of the building or development and make sure the property is in a lettable condition at the end of the lease. The usual compromise is for the tenant to be allowed to make non-structural alterations to the inside of the property, as long as the landlord consents in advance. The landlord will usually agree to be reasonable in considering requests for consent. Some minor changes may be allowed without the need for prior agreement. Structural alterations are usually prohibited.
The lease will set out the expected state of the property at the end of the lease, in the ‘yielding up’ clause. The tenant will usually have to remove all alterations and hand back the premises empty and in a good state of repair. This is an area ripe for dispute at the end of the term and both parties may need legal advice.
For more information on commercial leases, or any other commercial property matter, please contact Jonathan Frayling 01225 755621.