Commercial tenancy agreements
Explore commercial tenancy agreements, the contracts that outline the rights and responsibilities of landlords and tenants in commercial real estate
Commercial ‘tenancy agreements’ are usually referred to as a lease, with a typical term of three to 25 years, but more commonly, with the modern trend to shorter leases, between three and five years, though some may be longer with break clauses.
Landlords are expected to follow the RICS Code for leasing business premises.
Shorter leases and lower rent amounts may not be FRI. These make the tenant responsible for the interior of the premises only.
Often an off-the-shelf lease will suffice here, for example the Law Society commercial lease – which will considerably reduce legal costs.
However, for any substantial commercial letting, lease terms are usually negotiated between the parties, necessitating a custom drafted document.
It is crucial to get this right from the outset as commercial tenancies are primarily contractual – in other words the courts will interpret them at face value, on their exact wording.
The statutory rules come into play at the end of the lease term, giving business tenants security of tenure: an automatic right to renew the lease on similar terms.
This is subject to several exceptions, for example when the landlord intends to redevelop – see “Grounds for resumption of possession by landlord” Part 1-12 in the Act.
If the lease is ‘excluded’ from Part II provisions of the Landlord and Tenant Act 1954, tenants will have no automatic right to stay in the premises at the end of the lease.
It’s important for both landlord and tenant to establish the condition of the premises prior to the letting, especially with an FRI lease.
Otherwise, there’s no evidence available to identify maintenance and repair issues, and the repairing obligations at the end of the term, when a schedule of dilapidations is drawn up.
Usually, a chartered surveyor would prepare these reports.
It has been customary for the ingoing tenant to pay all legal costs – both sets of solicitors’ costs – but this tradition is perhaps a little outdated for smaller transactions and many lets are now completed with both parties paying their own legal costs.
Lease duration and renewal options
Rent amount and payment terms
Maintenance and repair responsibilities
Flexibility for business growth or contraction
Other
