Cracking The New Business Lease Code

Requirements

Benefits

Lease Negotiations: A landlord should set out clearly (and in writing) not only his proposed terms of the letting but also alternative terms.

This provides flexibility for the tenant but also helps the landlord to retain some control over the terms of the letting, by only putting forward proposals acceptable to him.

Rent Deposits & Guarantees: The landlord should set out clearly the terms of such protection including the amount, the time period, the arrangements for accruing or paying interest and the terms of release. The tenant should be protected against the default or insolvency of the landlord.

Provided that the terms of the rent deposit or guarantee are reasonable, a tenant will not find such a request onerous, as the landlord is offering the tenant protection in return.

Length of term, break clause & renewal: The term should be clear. The tenant should not be prevented from exercising rights under a break clause, as long as there are no rent arrears, he vacates the property and he has not created subleases. The landlord should consider excluding Landlord & Tenant Act 1954 renewal rights from a new lease.

While minimizing pre-conditions in exercising a tenant’s break option, the landlord is not prevented from serving a schedule of dilapidations, following the termination of the lease.

Rent Review: Review provisions should not be ambiguous; the landlord should (if requested) offer options as to how the rent will be reviewed. Either party should have the ability to start the rent review process.

Rent review is often a sticking point in lease drafting, so enabling the tenant to be involved at the outset in how the rent is reviewed should minimise delay later in the transaction.

Assignment & subletting: A landlord’s consent to assign or sublet should not be unreasonably withheld or delayed; conditions should be tailored to the transaction - an authorised guarantee agreement should only be required in certain circumstances.

Less onerous provisions will assist in the marketability of the lease and, quite possibly, provide a better increase in rent on review, especially if the term of the lease is fairly lengthy.

Service charges: A landlord should give a tenant an estimate of service charges and insurance premiums, together with an indication of major works which may increase service charges in the near future.

By addressing this point, a landlord will be prompted appropriately to consider the service charge and repairing covenants to be imposed upon a tenant.

Repairs: The tenant’s repairing obligations should be appropriate to the length of the term and, he should not be obliged to return the premises in a better condition than at the outset.

A tenant is less likely to agree a lease where a short term is offered but the landlord expects a tenant to take on full repairing and insuring obligations.

Alterations and change of use: A landlord’s rights should be limited to those reasonably protecting the value of adjoining or neighbouring premises owned by him.

Most tenants fit out premises to their requirements on assignment or upon taking a new lease; there should, therefore, be no need for an outgoing tenant to remove permitted alterations.

Insurance: Where a landlord arranges insurance, this should be with a reputable company; if commission is received, the tenant should be notified. Landlords should consider early termination only where long-term rent suspension or reinstatement difficulties arise.

Early termination provisions should be in line with current insurance practices, so as to minimise loss to both parties.  If loss of rent is only covered for a limited period, the option to terminate should arise only at the end of such period.

Ongoing management: Any schedule of dilapidations should be served at least six months before the end of the lease. Where a tenant applies for consent under the lease, the landlord should give an estimate of costs as soon as possible and decide on applications for alterations within fifteen days of being provided with full information.

Dealing with dilapidations before the lease has ended helps to ensure that such matters are addressed more promptly by both parties; it increases a landlord’s chances of recovering costs. Refusal of consent (if reasonable) is less likely to be contested if the landlord has not unduly delayed; liability for any loss suffered by the tenant as a result of refusal is reduced.