Are you considering taking on a Lease of a commercial property? Do you wonder what most concerns individuals in your position? Perhaps you cannot find sufficient information on your most important questions?
In this article, we will answer 5 burning questions prospective tenants have, when they are considering taking on the Lease of a commercial property.
1. What are my rights as a commercial property Tenant?
2. What is a Break Clause, and should I have one in my Lease?
3. Can a Landlord refuse my request to have pets in the property?
4. What will happen if I want to end my Lease early?
5. Can a Landlord enter the leased property without my permission?
1. What are my rights as a commercial property Tenant?
A commercial property tenant’s rights are encapsulated in the Landlord and Tenants Act 1954 (the statutory terms), their lease and the common law.
The Statutory terms
The Landlord and Tenant Act 1954 (the 1954 Act) protects tenants, who use their premises for the purposes of a business. The Act does not protect Leases taken out for the purposes of mining or a Lease taken out on agricultural premises. The Act also does not protect a business Tenant who has a Lease term which is less than six months and who shows no intention to renew the Lease.
A Tenant can be protected by the 1954 Act (i.e be a secure tenant) or be contracted out of the Act (i.e be a non-secure tenant).
Security of Tenure
Part ii of the 1954 Act governs business tenancies and gives Tenants Security of Tenure, to a degree. If a Lease is “protected” by the 1954 Act the Tenant will have security of tenure, however, if they are “contracted out” of the act they will not have security of tenure.
Security of Tenure means that when the Lease term comes to an end, the fixed term originally agreed upon between the Landlord and Tenant will now continue indefinitely until the Landlord and Tenant agree a renewal of the lease or terminate the lease.
The right to a new Lease
A Tenant protected by the 1954 Act can apply for a new lease by serving a section 26 notice. The Landlord then has two months to respond (by issuing a counter notice) to inform them if they agree to the request.
Alternatively, if an agreement cannot be reached between the parties, the Tenant can apply to the court and ask the court to set the terms of the new Lease.
When a Landlord wants to bring a Tenant “holding over” to an end, they will serve a section 25 notice on the Tenant. There are two types of section 25 notice.
A friendly section 25 notice will state that the Lease will end on the originally contracted date, that the Landlord wishes to offer the Tenant a new Lease and suggest the new terms for the new Lease. A hostile section 25 notice will state that the Lease will end on a certain date and that there will be no new Lease.
“Contracting outside” of the 1954 Act
A Tenant’s Lease can be “contracted outside” the 1954 Act. This means that the Tenant will have no right to stay in the Leased property or renew the Lease at the end of the agreed term. When a Tenant is contracted out of the 1954 Act, the Landlord will require the Tenant to sign a Statutory Declaration swearing out of the Landlord and Tenant Act 1954 before the Lease is signed.
A Tenant with long term business plans would prefer to have Security of Tenure as the prospect of being pushed out of their location may be detrimental to the business’s financial future, particularly if it is a customer facing business.
A Tenant with Security of Tenure can confidently invest and grow their business without having to worry about being forced to vacate the property at the end of the Lease term. A Tenant protected by the Act can feel confident in establishing a business premises with a degree of permanence
The contractual terms
The Lease
The rights that a Tenant has in their Lease, will depend on the lease terms.
Lease terms such as the number of rent reviews or break clauses, the presence of a rent free period, whether the Tenant can sublet, whether there is a Rent Deposit and the length of the Lease will all be decided before the lease is signed and these are the rights which both parties will rely upon.
It is important for a tenant to obtain expert advice from an experienced solicitor in order to understand their rights under the 1954 act and their lease, as it will impact their plans for the future.
2. What is a Break Clause, and should I have one in my Lease?
A break clause is a clause in a Lease, which when actioned upon, allows the Tenant to end the Lease before the agreed Lease term has expired.
The Lease will specify the date(s) during the Lease term when the break clause(s) can be activated.
A Lease taken out for a long period of time may have multiple break dates, while a shorter lease may have no breaks at all.
If a tenant wishes to bring their lease to an end prematurely, they must do so under pre-established requirements set out in their lease; which will be agreed upon before the lease is signed. Such agreements may entail being required to give notice within the correct time period i.e. 6 months’ notice) or paying a fee for ending the lease early.
In some circumstances the Landlord is permitted to refuse the Tenant’s written request to break the Lease. The reasons for this can be due to a technical error when serving the break notice, if the tenant refuses to pay the rent or is in arrears. It is important to seek legal advice when triggering a break clause as small breaches can result in the break notice being invalid.
The need for a break clause in a lease is subject to the tenant’s individual’s needs. Longer leases may have multiple breaks while a shorter lease may have no break clause at all. It is important for a tenant to consider their future business plans and the risks of potential failure when considering if they need to include a break clause(s) in their Lease. Most commercial lease agreements will have a break clause as many business owners would like to have the option to leave the lease early if the business is not a success.
It is important to note that there can be different types of break clauses such a Tenant only break clause, a mutual break clause and a Landlord only break clause. It is easy to understand why a landlord only break clause is not good for a tenant with their own long term business plans.
It is important to negotiate the right type of break clause into your lease agreement and one which fits with your business’ objectives and risks.
3. Can a Landlord refuse to have pets in the property?
As a nation of pet lovers, we often receive enquiries from prospective tenants asking if a Landlord can refuse consent to have a pet in the property to be leased.
The new Standard Tenancy Agreement was announced in January 2021 by the UK Government to support commercial Lease holders who own pets.
Although the model tenancy agreement is only a government guideline and thus not legally binding, it aims to prevent Landlords from having a blanket ban on pets.
The Standard Tenancy Agreement takes the stance that assumes that a Landlord does not want a Tenant to have pets within the leased property.
It provides that the tenant must submit a written request to the landlord which the landlord would need to respond to within 28 days. If Tenants wish to have exotic pets, they will need the Landlord and their Local Authority’s permission.
At stated, these are only guidelines, and a Landlord is not obliged to agree to it in the Lease. As the law stands today, a Landlord can refuse a Tenant’s request to have their pet in the Leased property.
4. What will happen if I want to end my Lease early?
If a Lease is taken out under a limited company, the tenant will not be held personally liable. The company named on the lease would incur the financial penalties and may risk going bankrupt. If the company named on the Leases is not a limited company, the tenants can be held personally liable. If you have a company but take a lease out under your own name, you will be held personally liable.
If a Tenant wishes to end the Lease they should do so on the break date specified in their Lease. The Lease will state what day they can legally end (break) the lease early and the steps which must be taken in order to do so i.e. the notice period required.
If the Tenant named on the Lease wishes to end the Lease agreement early, while disregarding the terms set out in the lease, they do so at their own risk and may incur huge financial penalties.
These financial penalties can range from owning the Landlord 3 to 6 month’s rent (which is the standard range of notice period to initiate break clause). Penalties can also be incurring costs until a new tenant is found, or owing the full sum expected on the lease’s term.
It is important that a Tenant checks their lease in order to establish what penalties, financial or otherwise, they can expect to incur if they consider simply “walking out” on their Lease agreement.
5. Can a Landlord enter the Lease property without my permission?
The general rule is, the Landlord cannot enter the Lease property without the Tenant’s permission however, this rule can be broken, if there is an emergency, subject to special conditions.
If the Landlord wishes to enter the Lease property they are required to serve written notice at the Lease property, requesting entry.
The Landlord’s written notice can be rejected by the tenant. This is because UK Law provides that a Tenant has the statutory right to live in quiet enjoyment. This means that the landlord cannot disturb the tenant by entering the property without being permitted. Therefore, the Tenant can refuse their request to enter if it is an inconvenience to the Tenant.
A Landlord is permitted to gain entry to the property in order to conduct gas safety inspections and to establish if the tenant is keeping the property in a good state of condition however, this is also dependant on the Tenant’s availability.
As stated, there are situations where a Landlord can enter the Lease property without permission whilst still not breaking the law.
Circumstances where this may occur are, if a Landlord believes there is a gas leak at the property or signs of one, a fire or signs of one, flooding, structural damage which would require immediate attention, criminal activity or violence occurring on the premises. The Landlord is not permitted to enter the property if the Tenant is refusing to pay rent.
Landlords and Tenants should check their Lease and seek the correct advice from an experienced solicitor in order to understand the law and their rights.
How can Pure Business Law help?
We are specialist commercial property Solicitors based in Bedford and London and operating nationally. As commercial property specialists, we will protect your commercial property rights and resolve any disputes which may arise regarding commercial property ownership.
If you would like to discuss any legal issues, disputes concerning your commercial property, or anything raised in this article please contact us and speak with one of our solicitors. Pure Business Law is regulated by the Solicitors Regulation Authority and is a licensed member of the Law Society of England & Wales.