A Guide to Commercial Leases

Commercial leases are legally binding contracts made between a business tenant and a landlord.

The lease gives the tenant the right to use the property for business or commercial activity for a designated time frame. In return for this, the tenant will pay rent to the landlord for this service.

The lease will also outline the rights and responsibilities of both the landlord and the tenant during the lease period.

Whilst the underlying principle is the same as a residential lease, there is less Governmental protection in place for commercial tenants, as those entering into the contract are expected to be knowledgeable about running a business and will be better suited to the responsibility.

There is also more room for negotiation in a commercial lease, again because both parties are typically considered to have more knowledge of business practices, and so are more likely to approach bargaining with realistic aims in mind.

What provisions are typically dealt with in commercial leases?

The terms of a commercial lease will vary depending on the requirements of both the tenant and landlord. However, they will typically cover the following matters:

The type of property being let
The address of the property
The length of the tenancy, and whether it is a fixed-term or renewed periodically
The amount of rent charged, and when the rent will be paid
Which types of business can be carried out on the premises
Who is responsible for any leasehold improvements
What the provisions are of the security deposit

On top of this, some leases may also include additional terms regarding:

The terms for lease renewal
Any improvements the landlord is responsible for
Any improvements the tenant is responsible for
Whether subletting the property is allowed
What notice provisions are offered for termination of the tenancy
Who is responsible for managing the insurance of the property

Information on the Premises

The lease will contain a legal description of the premises, this is basically how the property is identified in property transactions in the same way it would be described in any form of purchase documents such as a mortgage application or land registry form.

There are several other terms you will need to be aware of regarding your property, these include:

Fixtures – Any items which are attached to the premises in a way that removing them would damage the property, such as a sink or toilet.

Chattels – These are any items that could be included but are considered separate from the property, such as blinds, desks etc.

Leasehold improvements – This is an expense incurred when making a permanent improvement to the premises. They are considered fixed assets and will generally depreciate during the lease period.

What you should know about rent?

Typically, in commercial property, rent is paid quarterly in advance, Popular months for this are March, June, September and December.

However, commercial leases are more negotiable than residential ones, so it is possible to agree an alternative structure with your landlord/tenant that will suit both parties.

Other important terms to be aware of regarding rent include:

Base rent – This is the minimum amount of rent payable as set out in the lease and will exclude any additional operating costs.

Percentage lease – This type of lease typically occurs in retail, where the tenant will pay a fixed base rent plus a percentage of their gross income, agreed upon in advance.

Gross rent lease – This is a lease in which the tenant is responsible for paying the base rent and any specified expenses, while the landlord is responsible for paying all expenses involves in operating and maintaining the property including insurance, utilities and maintenance.

Terminating commercial leases

In most circumstances, you will be able to terminate the lease at its conclusion provided you communicate this with the landlord and any relevant parties so that you can ensure all the required paperwork has been completed.

If you are looking to terminate a lease before its agreed conclusion, then there will need to be a break clause in the contract.

A break clause will specify that the lease can be ended without anyone facing a penalty, and you will typically be required to give two months’ notice before activating it.

There may also be a situation where you can agree on terms to terminate the lease with the other party, examples include the tenant passing the lease on to someone else, the tenant is able to sublet the lease, in both situations the tenant may be required to act as a guarantor.

If the above situations don’t apply, then it is the legal obligation of the tenant to continue paying rent for the rest of the tenancy.

How Knightsbridge Solicitors can help

You can rely on Knightsbridge Solicitors to support you with any legal aspects related to commercial property. Our experienced team of commercial property solicitors are ready to help you.

No client is too big or too small, our team handle cases for clients of all shapes and sizes, from large corporations or residential developers to commercial landlords, or business owners looking for the first premises for their new start-up.