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The devil is in the detail

17th February, 2014

The Reality

The thing uppermost in most people’s minds when taking on a lease of commercial premises is how quickly they can get in to the property. The need for additional space for an expanding business or taking on premises in connection with a new venture are usually the driving factors. The legal work associated with the new lease is often viewed as an obstacle by prospective tenants, and is considered to be a process which merely slows down the achievement of their goals.

In reality, however, the “devil is often in the detail” of leases and it is vital that proper thought is given to the lease before signing on the dotted line. A tenant will have to live with the lease for some time to come and its’ provisions could have a major impact on the tenant’s business.

Break Clauses

Nowadays leases quite often contain provisions that allow the tenant to bring the lease to an end on a specific date before the end of the term of the lease. For example, a tenant taking a 6 year lease may be able to negotiate the right to end the lease after the first 3 years. Break clauses are not all the same and some are drafted in such a way that it becomes virtually impossible for a tenant to bring the lease to an end before the end of the full lease period.

If your wonderful new venture has either fallen flat on its face or has been so successful that you need to move to larger premises, the last thing you want to find is that you are not able to terminate your existing lease on the date you thought you would be able to. You could end up having to pay rent on empty premises or be prevented from growing your business because of the restrictions on space.

Insurance

In most leases of commercial property the landlord arranges the buildings insurance and the tenant reimburses the landlord the insurance premium. If the worst happens and there is a fire at the property, which means that you can no longer trade from the property, the lease will normally contain provisions setting out;
• what obligations the landlord has to reinstate the property;
• what happens with regard to the payment of the rent whilst the tenant cannot trade from the property;
• what happens if the property cannot be rebuilt within a specific time frame.

There are many issues that become vitally important should you ever find yourself in this situation. For example, what if the damage has been caused by flooding and this is not covered by the landlord’s insurance? What if the cost of the repairs is greater than the insurance monies? Who is liable to pay the excess on the insurance policy? Do you, as a tenant, have any control over the amount of the excess on the policy?

All such details will suddenly become terribly important to you if disaster strikes!

Dilapidations

Many tenants somewhat naively believe that their liability for repairs is somehow linked to the length of the term of the lease, the amount of rent they pay and the condition of the property at the time they took the lease.

In reality, whilst the standard of repair can be affected by the age of the property, the bottom line is that there is no direct correlation between the rent and the length of the lease on one hand and the potential liability for repairs (either during or at the end of lease) on the other. Most leases contain an obligation to keep the property in repair. In practice, this can mean putting a property which is in disrepair into repair. There are a variety of ways in which a tenant’s potential exposure for dilapidations liability can be mitigated and, at the very least, a prospective tenant should know what its’ potential liabilities are in this respect.

Moral of the story

It really is worth spending time and money getting the lease right in the first place. The comparative bargaining strength of the parties to the lease and market forces often mean that a tenant is not in a position to dictate the provisions of the lease.

Nevertheless, at the very least a tenant should be aware of the practical implications of the provisions of the lease. It is worth actually reading the lease report, which your solicitor will prepare for you, and discussing with your solicitor any points of concern rising out of that report.

Rushing in to sign up on a lease can often lead to problems for you at a later date.

After all, the devil is in the detail!

For more information please contact Trish Randles on 01743 443043 / 01244 405425 or email [email protected].

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