Why is it important to consider using solicitors in the early stages of a Commercial lease negotiation

These days potential tenants of commercial property are taking a cautious approach to new business commitments.  

Generally speaking, 25 year leases are things of the past, especially for smaller businesses.
Typically, tenants are concerned about whether the venture will work out after the first year’s trading, or whether it will still be viable if the landlord tries to put up the rent.

Break clauses in leases are so popular because they allow tenants to bring the lease to an end prematurely by giving written notice to the landlord, so break option for tenants are an increasingly popular feature of lease negotiations with landlords and their agents.

Unfortunately, many tenants just agree to having the right to end the lease at certain fixed times without appreciating the legal niceties or considering what they are actually agreeing to.  For this reason we recommend that tenants who are involved in lease negotiations with landlord’s agents should consider seeking legal advice.

Examples

For example, landlord’s solicitors always draw up break option clauses so that tenants must comply with their tenant obligations in the lease up to the break date. 

This standard landlord’s requirement will not have been considered by most tenants during the initial negotiations when solicitors are not involved.  What most tenants will not realise is that such conditions would make it very difficult indeed for a tenant to break the lease because the courts can interpret them in a strict way so that even minor breaches of an obligation such as failing to paint a door could prevent the tenant from exercising its break option and getting out of the lease.

A wise tenant should try to get the landlord or his agents to agree that a tenant’s only break option must be unconditional, or possibly only subject to payment of the annual rent up to the expiry of the break notice (because it is important to be able to quantify what has to be done as part of exercising the tenant’s break right ). 

An even wiser tenant should not accept a landlord agent’s summary of what has been agreed  (or Heads of terms generally setting out what has been agreed) without getting a solicitor to look at it first.

This can save a lot of time, trouble and expense later on in the transaction.

Another good example is the whole issue of repairs. Not enough tenants properly consider what this is really likely to mean to them and just accept landlord’s Heads of Terms that refer to the lease being on “full repairing and insuring terms”. If in doubt tenants should refer to a solicitor as no stage is too early and a bit of the right advice at the outset can save a lot of time trouble and expense down the line.

Conclusion

it is never too early for a prospective tenant to consult a solicitor about heads of terms or early lease negotiations with a landlord or its agents. The detail can hide real issues for the tenant and difficulties can arise if heads of terms are just accepted at the outset because this can make later revision/variation of those terms much more difficult and possibly lead to bad landlord and tenant relations from day one of the relationship.

Contact us

If you are thinking of taking a lease of commercial premises and have just received a lengthy set of “Heads of Terms” from the landlords’ letting agents, why not contact me, Carlo Sereni, Head of Commercial Property here at Terry Jones Shrewsbury office on 01743 285861 (DD), or by email at carlos@terry-jones.co.uk for a no obligation chat?


 

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