A commercial lease is a legally binding contract between a tenant and a landlord, for property that is used for business activities.
Well-recognised types of commercial leases include office buildings, supermarkets, restaurants, shopping outlets, industrial estates and manufacturing factories. Occupancy rates and sale prices are determined by the business activity in a specific area.
A lease grants the right to use a property for commercial activities for an allocated time frame. In return for the property, a tenant will pay money to the landlord, in the form of rent.
A lease will outline to the tenant the rights and responsibilities they have relating to the property for the duration of their lease.
When compared to a residential lease, there is less governmental protection in place for business tenants. This is down to the fact that commercial lease owners are presumed to know more about running a business and contracts. Therefore, they are better suited to the responsibilities of a lease, in comparison to someone in residential real estate who is a first-time renter.
When finalising a commercial lease agreement, there is more room for negotiation than in residential leases. This, again, is because business owners likely have a better understanding of how to conduct reasonable negotiations and are more likely to have a realistic approach to bargaining.
So, we already know there is a landlord and a tenant involved in a commercial lease agreement- they are the main characters if you will. But who else is involved?
It is not a requirement to seek legal advice when entering a commercial lease, however, it is highly recommended. A solicitor helps to navigate the complexities of lease agreements, which for business owners who already have a lot to juggle can be too much.
Commercial property solicitors look after landlords and tenants, so they are protected and fully aware of the lease conditions. They will review and amend the lease based on the landlord or tenant’s direction, identify any clauses and clarify the obligations of the landlord or tenant.
By employing a solicitor, business tenants can limit their liability over time. It is also likely that a landlord will employ a solicitor as well, so it is good to have legal counsel on both sides of the agreement.
A solicitor will:
Full legal names and correct contact information of the landlord and business owner/tenant must be provided at the start of the process
A detailed and accurate description of the commercial space, such as the address, property size (usually in square footage) and any amenities included.
The duration of the commercial lease term is written into the agreement, with a designated start and end date. This section will also include any options for renewal or termination clauses. A lease term will commonly be on the negotiated terms.
The landlord will determine the monthly rent amount that the business tenant is required to pay and when it needs to be settled. In this section of a commercial lease agreement, any penalties for missed payments, late fees and rent escalation will be covered.
This section outlines the security deposit amount, the conditions for its return, and any possible reasons why the deposit will be deducted. This usually clarifies what damages the tenant is liable for beyond the usual wear and tear.
This clause of the commercial lease agreement will cover the limitations or possibilities of how a tenant cause use the leased space, such as extensions or renovations.
In this section, you will find information as to who is responsible for the relevant maintenance of repairs to a property, the landlord or the tenant. This covers structural repairs, utilities, HVAC systems etc.
This is again a highly negotiated clause in the agreement, which outlines what bills or services are included in the rent price, and what the tenant is responsible for separately.
All commercial properties will require insurance, which protects both the business, its assets, the property, and the landlord. Under an insurance clause, it is outlined to each party what relevant insurance they are entitled to pay.
This section stipulates whether the tenant can sublet the commercial property or assign the lease to another party/business. If so, any relevant provisions are outlined.
If a dispute occurs between the parties involved in the commercial lease, the agreement states how these matters are to be dealt with i.e. Mediation, arbitration, or litigation.
This clause will outline the conditions of an early termination of the lease. Any applicable laws will be outlined so that both parties have full disclosure.
A statement requires both parties to comply with all applicable laws during the lease term. Signatures and dates seal the entire lease agreement, to certify that both parties approve and acknowledge their rights and responsibilities in the agreement.
We hope this blog has been useful in outlining the requirements of a commercial lease agreement.
At Blacks Legal, we have an exceptional team of commercial property law solicitors who are experienced in dealing with commercial lease agreements.
If you are currently entering into a commercial lease and require guidance and support with the agreement proceedings, please get in contact with us by emailing info@blackslegal.co.uk or calling 020 8106 2398.