How can a tenant get out of their lease?

First of all, the lease should be examined to check that it has been completed correctly. There have been instances where commercial leases have not been signed, or not signed properly which can void any obligations.

If the lease contains a break clause, the tenant should follow the provisions for this in the lease. For example, the lease may state that the tenant must give 6 months’ notice in writing to a specific address.

When can you request a surrender of leases?

If the above options are not available to the tenant, they may request that they surrender the lease. Landlords are often reluctant to grant a surrender due to the difficulty in letting commercial properties, however, it is possible that an agreement can be reached.

The landlord should carefully consider their reasons for not wanting to allow their tenant to surrender, as they are entitled to ask for a premium payment in lieu of rent to cover any losses made while they re-let the premises. A common sum is one or two years rent, however, it may be worthwhile asking for a surveyor to determine this value.

What is a licence for alterations?

A licence for alterations is a form of written consent from the landlord permitting the tenant to carry out work on the premises that they occupy. Any kind of written consent should suffice; however, it is in everyone’s best interest to formalise the agreement in a licence for alterations deed.

What are the benefits of a licence for alterations?

The benefits of doing this include:

• All parties will have clarity with regards to the exact type and amount of work being agreed to. This could include detailed plans and/or drawings
• A time limit can be imposed to ensure that the tenant is obliged to start and complete work within a reasonable and agreed upon timescale
• The landlord’s consent would usually be conditional upon the tenant obtaining planning permission or other required consent, at their cost
• The landlord may want to make sure that any work carried out is done so safely and responsibly and should make the tenant aware that this is their responsibility
• Both parties should make clear what the insurance obligations are, and agree upon terms to cover this

It is important that the work is formally documented, as the tenant will need this for any subsequent sale of the premises

Why is a licence for alterations required?

It is often set out in modern long leases that the landlord will be responsible for the structural upkeep of the premises, and as a result the tenant is only responsible for the non-structural elements eg. plastering and floor coverings. This is not always the case, however in both situations the landlord’s consent is usually required before any alterations are made.

The terms set out in the lease are key to understanding what alterations can be made without the landlord’s consent. Often, any and all structural changes require consent from the landlord. External changes, additions or alterations to services such as gas and electric are also usually restricted. Non-structural changes will often be permitted with prior consent form the landlord, and the lease should state that the landlord’s consent should not be unreasonably withheld.

The terms and format of leases will vary, and particular attention should be paid by the tenants to ensure that all alterations are within the terms stated in the lease.

Can Landlords charge for consent?

When drafting a lease, landlords will often make provisions regarding the payment or fees for consent to alterations. If a legal professional is instructed early in the process, they can usually obtain assurance from the tenant’s solicitors or funds from the tenant to cover any legal costs. A landlord may charge an administrative fee for consenting to the arrangements on top of their legal costs, however this may not be an ‘unreasonable’ amount.
What happens if a tenant has made alterations without the landlord’s consent?

If a tenant has made alterations without the landlord’s consent, or made alterations which breach the terms of the lease, they may approach the landlord for a retrospective licence for alterations. In these situations, the landlord may charge extra administrative fees or a premium because the tenant is in a difficult situation.
What other obligations does the landlord have?

Time is essential when a tenant asks for a licence for alterations, as a delay in response from the landlord would give the tenant grounds to apply to the court if the landlord has unreasonably withheld consent.

What is a licence to sub-let?

Where a lease allows sub-letting, there will usually be strict provisions and written consent from the landlord is almost always needed before any action is taken by the tenant to sub-let. If the landlord consents to the sub-let, a formal licence will be drawn up between the landlord, tenant and sub-tenant together with any guarantors required. It is vital that all parties involved in a sub-let seek the advice of a professional commercial property solicitor to assess the terms and conditions of the licence. JMR Solicitors can assist you in checking these terms as a landlord, tenant or sub-tenant and advise you in getting the best possible outcome.

Who decides if a sub-let licence is granted?

It is ultimately the landlord’s decision as to whether a sub-let licence is granted, and usually, this consent will come with conditions. The most common conditions include:

• The rent paid by the sub-tenant must not be less than the than the open market rent payable at the time of the licence
• The sub-lease must not contain rent review provisions at the same time and on the same basis as stated in the lease
• The sub-lease must not be given in return for a payment of a premium
• The sub-tenant must provide a rent deposit or a guarantee
• The sub-tenant must not be provided with a rent-free period either at all or not for longer than would be usual in the open market
• The sub-tenant must comply with the terms of the lease, so far as they apply to the sub-let premises
• The sub-tenant must not be included in any renewal provisions. This is particularly important to ensure that the sub-tenant does not acquire rights of secure tenancy

Landlords should consider being open to negotiations regarding the provisions and should consult professionals before drawing up and sub-lease to ensure that everything is above board and is everyone’s best interests.

What is the purpose of the rent deposit deed?

The purpose of the deed is to ensure that the money remains the property of the tenant until such a time where it is needed by the landlord to cover any costs. This remains the case even if the sum is held in an account under the landlord’s name.
Having a rent deposit deed allows the deposit to be protected, preventing it from being claimed by a liquidator in the event of the tenant’s insolvency.

Registering the charge:

If the tenant in question is a company incorporated in England or Wales, the charge created by the rent deposit deed must be registered with Companies House within 21 days of its creation. For charges created before April 2013, this should be done using form MR01 and for charges after April 2013, form MG01.
LLPs registered in England and Wales under the Limited Liability Partnership Act 2000 should also register the charges and mortgages created with Companies House. For charges created before April 2013, this should be done using form LL MR03 and for charges after April 2013, form LL MG07.

Details of the rent deposit deed

To draft a rent deposit deed, your solicitor will need to know:

• Security of tenure

Is the lease excluded from the security of tenure provisions in the Landlord and Tenant Act 1954? If a property is protected by security of tenure and the lease comes to an end, if the tenant is still occupying the premises and using it for purposes of their business, the tenancy will continue unless one of the procedures under section 25-27 of the Landlord and Tenant Act 1954 is followed.

• Landlord’s details

The deed should include the capacity in which the landlord is entering into the rent deposit deed, be that as an individual, company, partnership or LLP. If it is an LLP or company, the company or registration number will have to be provided. If it is a partnership, the legal title must be help in the name of the partner(s) and not in the name of the partnership.

• Tenant’s details

The deed should include the capacity in which the tenant is entering into the licence, be that as an individual, company, partnership or LLP. If it is an LLP or company, the company or registration number will have to be provided. If it is a partnership, the legal title must be help in the name of the partner(s) and not in the name of the partnership.

• Date of the rent deposit deed

The deed should also include the date from which the deed will have legal effect. If this is not known, the date can be inserted on the top of the covering page on the day of completion.

• Guarantors

If the tenant has a guarantor then their name and address will have to be provided to be included in the deed together with the capacity in which they are entering into the deed. Individuals may use their correspondence address and companies or LLPs can use their registered address.

• The deposit

The deed should state the following with regards to the deposit:

• The sum of the deposit
• The frequency of any interest that is to be paid
• The name of the bank and the name of the account holder in which the deposit is to be held
• Whether the tenant is required to maintain the balance should any amount of the deposit be used.

Can I negotiate new terms for my lease renewal as a tenant?

If you want to renew your commercial lease, you may want to negotiate the addition of new terms with your landlord. It is vital to keep a good relationship with your landlord so that in these situations they will be more willing to negotiate. Having a record of being a good tenant will increase the chances that your landlord will accept negotiations and agree to your lease renewal.
You may wish to negotiate for a reduction in rent, service charges, a rent-free period or a break-clause. Wildings Solicitors can help you with these negotiations and advise you in getting the best possible outcome.

Renewing the lease:

It is important to follow the procedure set out in The Landlord and Tenant Act 1954, which governs most commercial leases. This Act states that you must give your landlord the correct notice to protect your rights to renew the lease; this will be the section 26 notice. If your lease is drawing to a close, your landlord may serve you with a section 25 notice to terminate the lease.

At Wildings Solicitors, we can help to respond to this notice, whether you intend to renew the lease or not. It is vital to respond to these notices within the strict deadlines set out in The Landlord and Tenant Act so seeking professional advice as quickly as possible will help you to retain your rights.

We can also advise you on any interim rent payments while your new lease is being negotiated and finalised.

Renewing a lease:

If your tenants serve you with a section 26 notice to renew the lease, it could save you a great deal of expense and time finding new tenants. It is vital to keep a good relationship with your tenants so in these situations it is often best to agree to the renewal of the lease. However, you should be aware of your rights, and how best to protect them during the process.

Can I negotiate the price when renewing a commercial lease?

It is normal to negotiate throughout the process of renewing a commercial lease. The tenant may request a rent reduction or for the implementation of clauses that were not in the original lease. This is where it is vital to get the advice of a commercial property solicitor to handle these negotiations on your behalf, and to advise you of your rights.

Finding new tenants:

If you decide that you want to find new tenants, JMR Solicitors can help to draw up a section 25 notice to serve on your current tenants. A section 25 notice will terminate the lease but can a sometimes cause dispute, which is why it is best to have a solicitor draw up the notice and make sure that everything is done within the law.

Gaining possession of a commercial property:

As a landlord, you have the right to gain possession of your commercial property. The grounds for which you may apply for possession are as follows:

• Breach of repairing covenant
• Persistent delay in paying rent
• Breaches of other obligations
• Availability of alternative accommodation
• Sub-tenant – possession required for letting or disposing of whole of property
• Landlord intends to demolish or reconstruct
• Landlord intends to occupy the premises himself

There is a strict procedure for serving a notice to quite using a section 25 form, as it is set out in The Landlord and Tenant Act 1954.

Service charges are fees paid by most leaseholders to cover costs of maintaining the building that they lease. They will usually apply to the costs of repairs to communal areas, structural repairs, buildings insurance, freeholders’ administration charges. Service charges can also cover the costs of maintenance of grounds, gardens or cleaning services. It is not unusual for every leaseholder to pay a share of everything, even if one does not use some of the services that the costs cover.

What amount will be payable in a service charge?

The amount that is charges should be stated in the lease. It can vary, but it should include which services are being paid for, when they are being paid, how the freeholder will collect the charges, how the service charges are calculated, how they are divided between the leaseholders and whether there is a reserve fund. The leaseholder does not have to pay for anything that is not specifically stated in the lease.

Payment of service charges

The lease will state when the service charges are to be paid, but they are typically annually, quarterly or half-yearly. They can be variable, which means that the amount paid can change each year. Payment is not liable until the freeholder sends a request for payment. A breakdown of the service charges is usually sent with the bill, as the leaseholder has the right to inspect and retain copies of receipts, the accounts and any other relevant documentation. The freeholder will be committing a criminal offence if they do not allow the leaseholder to inspect and take copies of the accounts. The leaseholder is allowed to charge a fair and reasonable management fee, but they are not allowed to make a profit from this.

Reserve funds

Many leaseholders will have to pay extra towards the costs of things like major repair works and so will hold some funds in reserve. This fund will help to ease the cost of any major repairs that may occur in the future. If a leaseholder vacates the premises before any major repairs have been made, it is unlikely that any contributions to this fund will be repaid. A formal agreement should be made between the leaseholder and freeholder before a reserve fund is set up, and a leaseholder does not have to contribute to this fund if the lease does not specify this.
The freeholder should consult the leaseholders before any major works are undertaken, which usually means any work that will cost over £250.00 for each leaseholder, or any service such as cleaning or garden work that will cost over £100.00 per leaseholder. Before a freeholder arranges these works they should inform the leaseholder what work is being planned, provide copies of two or more estimates for the work and give reasons for their choice of contractor.

The typical long-term lease will include a rent review clause which will provide for the rent to be reviewed every three to five years. It will also give details of what procedures will be followed when reviewing the rent. The landlord will usually be obliged to give the tenant notice of the new rent by a set date and the tenant will be obliged to respond by a stated deadline or they will be assumed to have accepted the new rent.
Most commonly the rent is based upon the open market rental value in the local area, however the new rent could be based on something else such as the retail price index. The lease will state the basis on which the new rent will be determined, and may also include terms that will allow the rent to increase but not decrease.

Should I negotiate the rent for my rent review?

As a tenant, it is advised that you keep a watchful eye on the local rental prices so as to have a guide to the open market values. As this is the most common basis for the rent, it will allow you a better understanding and give you a stronger position from which to negotiate.

What to do if I have a rent review dispute?

It is always advisable to negotiate the rent first, but if unreasonable requests or demands are being made then you may not be able to reach an agreement. The lease to the property should set out how disputes are to be handled, but this is generally by arbitration by an independent expert.

Depending on the age of your lease, your former landlord may be able to pursue you for any breaches made by your immediate or subsequent successors for the duration of your lease. If your lease was made pre-1996 then your landlord can look to you to be liable for breaches by the current tenant. If the lease was made post-1996, your landlord will be more restricted in who they can pursue. This means that they will require you to provide an authorised guarantee agreement when you assign the lease. This agreement will mean that your landlord can only pursue you for breaches made by your immediate successor, and not for any subsequent successors of the lease.

What are authorised guarantee agreements?

Authorised guarantee agreements are often imposed by landlords who give consent to the assignment of a lease. A solicitor will draw up the agreement and both parties can negotiate the terms of the agreement before it is signed.

The tenant who wishes to assign the lease will be giving their guarantee as to the performance of the lease obligations after you leave. If the assignee then breaches the terms of the lease, the landlord will look to you to be liable. If your successor assigns the lease to another party, you will no longer be liable for any breaches. If your successor does not re-assign the lease then you will be liable for breaches until the end of the lease. However, there are some cases where you would continue to be liable for breaches after your successor re-assigns, for example if your successor does not have the landlord’s consent to assign the lease you may still be liable.
Most landlords will not agree to assign a lease until you enter into an authorised guarantee agreement.