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Every commercial landlord will no doubt be aware that negotiating a lease for a property is a critical aspect of their livelihood. As a commercial property solicitor, I am keen to share my experience of advising landlords throughout England on getting their lease agreements correct. Here are a few essential tips for commercial landlords on dealing with rent free periods, photographic schedules of condition, break clauses and legal fees.
Rent Free Periods
These days, tenants will often ask for a rent free period. Traditionally, this period enabled the tenant to fit out new premises without incurring rent. More recently, they are an opportunity for incentivising and marketing vacant premises. Earlier this year, a client agreed a four month rent free period at the outset of a lease of a town centre retail premises. However, by the time the rent actually became due, the Tenant's business had failed and they had vacated the premises and moved abroad! My tip here is, if you feel you need to offer a rent free period as an incentive why not consider offering it in the second year of the term? At least by that time the Tenant will have demonstrated some longevity.
Photographic Schedules of Condition
It is the normal position when a tenant is taking a lease of the whole of commercial premises that the tenant should be responsible for the repair of the whole of the building during the term. This can be quite a daunting prospect and very often a Tenant or a solicitor for a Tenant will request that the responsibility to repair should be limited such that the Tenant should not be responsible for repairing into any better state of repair than the building was at the start of the lease. How then do you determine what state of repair a building was in several years earlier? Tenants will often suggest a Photographic Record of condition taken at the start of the lease, copies of which photographs are attached to the lease. Landlords should insist that the Schedule is professionally produced by a qualified surveyor and contains a narrative of the state of repair/disrepair that each photo shows. This will avoid the problem I had to deal with recently. A photo showed a "crack" on a plastered wall. Was this evidence of chronic subsidence? No, it was a hairline crack in paint on plasterboard that develop as plaster dries out. But without the appropriate narrative it would have been difficult for my Landlord client to prove his point.
Break Clauses
Tenants often claim they want long leases but then request breaks midway through a lease. Whenever possible a Landlord should resist a request for a Tenant only break as they can create uncertainty and demonstrate a suggestion that the Tenant is not confident in its' enterprise from the outset. If a Tenant insists then why not agree a mutual break giving either party the right to break the lease at a specified time?
Legal Fees
Historically, tenants paid the legal fees of the Landlord upon the grant of a new lease. More recently, this convention has eroded and the point is just another one for negotiation. I have a number of Landlord clients who continue to insist legal fees are paid by the Tenant before I draft a lease - the logic being that a Tenant is far more likely to commit once they start spending money and are likely to be prepared to stay if they occupy under a professionally drawn lease rather than just "a nod and a wink".
DLH Solicitors Clitheroe in Lancashire are business lawyers acting for Landlord clients on properties throughout England. We also use our expertise to advise Tenants! When negotiating leases, it is helpful to discuss the proposed terms at the earliest opportunity so that we can advise on pitfalls and tactics.
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