Negotiating A Commercial Lease, Including Security of Tenure
The commercial environment has changed substantially in the past few years as a result of the pandemic, the shift towards hybrid working, and the cost of living crisis. Such events have highlighted the importance of securing favourable commercial lease terms when entering into a new arrangement. To help you get the best deal when negotiating your commercial lease, we have answered some frequently asked questions below.
What are some of the key considerations when negotiating a commercial lease as a tenant?
In most cases, commercial leases are prepared by the landlord’s conveyancer and as a result, tend to reflect their business needs. This is why a commercial property tenant needs to negotiate the best possible terms. There are many factors to consider when negotiating a commercial property lease, including agreeing:
- A rent-free period
- A grace period if payments under the lease are late (interest rates normally apply in such circumstances.
- Fair repairing obligations, e.g. restricting your obligation to repair only, excluding damage by insured and uninsured risks, linking your liability to the state of repair at the start of the lease, and the exclusion of liability for inherent defects
- The right to change the use of the premises with the landlord’s consent
- Favourable provisions for decoration, alterations, and signage
- Suitable rent review dates and other rent review provisions
What is meant by ‘security of tenure’ in a commercial lease agreement?
Under the Landlord and Tenant Act 1954, security of tenure gives an existing commercial property tenant the statutory right to automatically renew their lease using terms comparable to their existing agreement. A landlord can only refuse to renew the lease if one of the limited exclusion rights set out in section 30 of the Landlord and Tenant Act 1954 apply.
What does it mean to contract out of security of tenure?
In some cases, a commercial property landlord may ask their tenant to contract out of their right to security of tenure. If the tenant agrees and decides to renew their lease at the end of term, they are not entitled to similar conditions. The landlord also has the right to refuse to renew the lease altogether.
Because security of tenure is a statutory right, it is only possible to contract out if:
- The landlord serves a ‘warning notice’ on the tenant. This must contain certain wording explaining in clear terms that the tenant is waiving their rights to security of tenure.
- The tenant has signed a statutory declaration (this should be done in the presence of a commercial property law solicitor) confirming that they have received a warning notice from their landlord and that they understand the legal ramifications of contracting out of security of tenure.
If you are being asked to contract out of security of tenure, it is highly advisable to review this with your Commercial Property Solicitor, who can explain what this means and whether this is suitable for your future commercial needs.
To talk to us about any points made in this article, please call us on 02476 231000 or email enquiries@askewslegal.co
Please note that this article does not constitute legal advice.
