Definitions of 7 key clauses in a Commercial Lease
1. Heads of terms
In a commercial lease, the Heads of Terms are a document that set out the main terms of a lease agreement between the landlord and a prospective tenant. They set out the future intentions of the landlord and prospective tenant in relation to a lease but are not usually legally binding. The terms are usually negotiated and prepared by the landlord’s agent. The Heads of terms will usually deal with details of the proposed tenant and landlord, the rent, permitted use, terms, rent deposit, liability for insurance costs, business rates, service charges, utilities, VAT and security of tenure.
2. Rent review
A rent review clause is a term in the lease that sets out how the rent will be increased. “Upwards only” rent reviews in commercial leases are popular with landlords.
3. The term
The lease term means the period between the commencement date of a lease and the expiration date of the lease.
4. Service charge
A Service charge is an amount paid by a tenant to the landlord to cover the cost of repairing or maintaining a property. Landlords charge service charges to recover their costs in providing services to a building they rent. Service charges may include the costs of cleaning, repairing and maintenance of communal areas such as lifts, hallways, lobbies etc and the cost of building insurance.
5. Break clause
A break clause is a clause in a lease that allows the landlord or tenant to end the lease early before the termination date. The tenant or Landlord can terminate the contract as long as there is a break clause and notice has been provided to the other party.
6. Assignment
An assignment of a lease is a transfer of an existing lease by the current tenant to a new tenant with the landlord’s consent.
7. Alterations clause
Leases usually restrict or prevent the tenant from carrying out any alterations to the property that the tenant is occupying. An alterations clause in a lease will set out what the tenant can and cannot do in the property and on what basis. The aim of the covenant is to protect the landlord from the tenant making changes or alterations to the property that damage the landlord’s property interests.
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