Our Top Tips for Commercial Landlords
Commercial leases differ from residential lease agreements in that they are less standardised and there is usually much more room for negotiation.
Commercial property landlords should be aware of the types of clauses that can be included in a lease agreement to address possible issues arising with tenants.
Below, we offer our guidelines on some of the most significant clauses to be considered.
1. Tenant subletting and lease assignment
To prevent a tenant subletting a commercial unit or assigning the lease to another party without your authorisation, an assignment and subletting clause should be included in the lease agreement to outline the tenant’s restrictions on occupancy.
2. Handling maintenance issues
The tenant’s responsibilities with respect to repairs and maintenance should be clearly specified in the lease agreement, including the terms for keeping the space clean and the tenant’s duty to pay for any damages caused by neglect or abuse. If you’d prefer your tenant to handle all repairs and insurance for the property, consult with a solicitor on drafting a Full Repairs and Insurance (FRI) lease, which removes the landlord’s liability for the cost of all insurance and repairs.
3. Ending the lease early
In the event that either you or the tenant wishes to end the lease early, break clauses should beincluded in the agreement to enable this.
Break clauses should specify exactly how notice must be given by either party, outlining the required steps to be followed when serving notice.
If these contractual requirements aren’t met, the notice will be void.
4. Service charge disputes
To pre-empt service charge disputes, your lease must be clear and specific with respect to the expenditure covered by the service charge, as the leaseholder will only be obligated to pay for exactly what is specified in the agreement.
5. Rent review disputes
Commercial lease agreements usually provide that rent may be reviewed every five years. Rent review clauses should include provisions on how to handle any rent review disputes with the tenant, such as mediation, arbitration, or calling on the services of an independent expert valuator.
Insurance provisions are essential in a commercial agreement, as there is no regulation mandating who should pay for which policies, even where a policy may cover both parties. As such, insurance provisions should include the following:
- State that the tenant’s personal property will not be insured by the landlord for loss or damages
- Specify which insurance policies are to be maintained by the landlord and by the tenant, including policies for property damage, loss of rent, public liability, and any other necessary coverage for the premises. This is essential for preventing disputes.
- If opting for a FRI lease, specify that the tenant is responsible for all necessary insurance.
Drafting commercial leases can be tricky, and requires specialist knowledge. We at CP Walker have the necessary knowledge to draw up such agreements.
Contact our Commercial Property Manager, Chris Burton.
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