Whether you are signing your first lease or getting ready for a move or a renewal, you need to have a thorough understanding of what a commercial lease agreement in the UK is. Unlike a residential lease, a business tenancy agreement is very much a “buyer beware” type of thing.
What this means is that your rights are exactly as they are set out in the commercial rental agreement, with little to no legal protection outside of that.
TIP: Download this free commercial agreement template to save yourself the headache of starting from scratch.
What is a commercial lease agreement?
A commercial lease agreement, or commercial tenancy agreement, is essentially a contract between a landlord and a business. This lease agreement sets out various terms, rights, and responsibilities of both the tenant and the landlord.
The word “commercial” simply means that the lease is for business use, as opposed to housing. There are many different business tenant types, from a sole trader with a small but growing business to large multinational corporations and everything in between such as those needing an auto repair shop lease agreement.
What are the key lease terms for Commercial Letting Agreements?
The majority of commercial property agreements have two main objectives. Firstly to have a record of the terms and conditions of the agreement, and secondly, to provide a degree of legal protection to guard each party (landlord and commercial tenant) against a possible breach of terms against the other. Nobody wants to secure the services of a law firm either, which is also partly why we have provided a free commercial/business lease agreement template.
Lease agreements are often signed, put in a drawer, and never seen again. However, a business property lease agreement rarely falls into that category. Both the tenant and the landlord will often look over the document to remind themselves of their obligations, especially regarding repairs and maintenance.
What are the tenant’s responsibilities?
A tenant has certain legal responsibilities outside of the terms and conditions of any commercial letting agreement. These cover things like ensuring the safety of staff, customers, and property visitors, as set out by the Health & Safety Executive (HSE). All business owners need to be aware of the HSE laws and regulations.
Commercial tenants also have the responsibility of informing the landlord of any maintenance issues, making sure fire alarms and smoke detectors work etc. It would normally be the landlord’s responsibility to have issues addressed, but the tenant must inform them.
Of course, there is also the issue of rent payment. These must be made according to the terms set out in the commercial lease agreement.
What are a landlord’s responsibilities in a Commercial Tenancy Agreement?
Commercial property landlords have a responsibility to ensure that the commercial property that they are letting is safe for not just the tenant but also anybody else who may be using or visiting it. There is often confusion around who is responsible for what, and this is largely because commercial property leases are not the same as those that cover residential properties.
There are considerable differences between the two types of lease, and the responsibilities of landlord and tenant can overlap. Generally speaking, however, a commercial property landlord will be responsible for the structural maintenance of a building, and depending on the agreement, they may also have to make sure fire alarms, smoke detectors etc. are also fully functional.
A commercial landlord should also ensure that the tenant can adequately heat the building and provide sufficient lighting, washing, cleaning, and bathroom facilities. They may also be responsible for gas and electricity, or their responsibilities may overlap with the tenant’s—it all depends on the terms and conditions set out in the agreement.
What is the difference between a long and short Commercial Tenancy Agreement?
A short Commercial Tenancy Agreement is a condensed version of a lease contract that contains the essential clauses to safeguard both parties involved. It’s devoid of any irrelevant details and sticks to standard provisions.
On the other hand, a long Commercial Tenancy Agreement encompasses a comprehensive set of terms and conditions, making the agreement more elaborate. This version also provides the option to alter clauses post-signing.
For straightforward leasing arrangements, the abbreviated version might be sufficient. However, if the landlord-tenant agreement involves intricate aspects, opting for the long form of the Commercial Tenancy Agreement is advisable.
How does a commercial property lease differ from a residential property lease?
A commercial property lease differs from a residential property lease in that the former is utilized for renting a space for business purposes, while the latter is intended for renting a home or personal dwelling. Commercial leases are generally considered as contracts between experienced business individuals, which results in less government protection for commercial property tenants compared to residential property tenants. This also means that the parties of a commercial lease usually have more bargaining power and negotiating capacity.
Is an oral lease agreement sufficient?
Oral lease agreements can be challenging to enforce in a court of law. In case of a dispute, a judge would have to determine whose account to believe, which could lead to ambiguities. A written agreement, however, is typically upheld by courts, as it provides a clear record of the terms and conditions agreed upon by both parties. Some legal jurisdictions mandate that any contract relating to land or interest in land must be in writing to be legally binding.
What are provisions commonly dealt with in a commercial lease?
A commercial lease typically covers several key provisions, such as the type and location of the property, the duration of the tenancy, the amount and payment schedule of rent, the type of business to be conducted on the premises, ownership of any improvements made during the tenancy, and the provisions for a security/damage deposit. The lease may also include provisions for renewal, landlord and tenant improvements, subletting or assignment of the property, termination notice, and insurance requirements.
What should be included in a commercial lease agreement?
It’s important that your commercial lease agreement contains the crucial details which allow it to be both legally binding and comprehensive in its scope. Even if your lease is simple, these details should be present to preserve the integrity of the contract.
- Parties to the lease – Include the full, legal names and addresses of the landlord (‘lessor’), tenant (lessee) and any guarantors (where required). At the end of the document, all parties will need to sign in the appropriate places with witnesses.
- Property Details – State the entire address of the premises, along with a clear description of the property (size, boundaries, usage), a map or floorplan , and a statement clarifying if there are any shared areas (like car parks or catering spaces).
- Lease Term – Simply state the length of time the landlord will lease the tenant the property, including the start and end date, any break clauses, and whether it is a rolling contract.
- Rent and Payment Terms – This section should govern the tenant paying rent and the terms they do this under. For example, the amount, the payment frequency, method of payment, penalties for late payment and any rent review clauses. If you do choose to include a rent review clause, it should clarify the method of the rent review and the frequency.
- Deposit and Security – This section should outline the deposit required from the tenant, the conditions for its return and any requirements regarding a rent deposit deed. Equally, you should be clear on whether a personal or bank guarantee is needed for the deposit amount.
- Service Charges – The aim of this section is to describe any additional costs, and who is responsible for them. First, you will need to state any service charges – like maintenance and security – alongside the tenant’s contribution and how those charges are calculated.
- Insurance – In similar fashion, there needs to be clarity on what insurance is necessary for the property, and who is paying for it. Building insurance is a critical component, and the agreement should describe what will be covered by it and who pays – in this case, usually the landlord. Likewise, the writer of the agreement will need to state any further insurance required by the tenant for their usage of the property, for example, public liability insurance and business interruption insurance.
- Repairs, Maintenance, and Alterations – This section will need to outline the limitations and responsibility for the fabric of the building. The landlord and tenant obligations must be clearly stated, for example, returning the property in a certain condition and whether the tenant can alter the property.
- Use of the Property – This should state how the property is allowed to be used. This should follow the permitted use documents, and clarify any restrictions on certain uses (e.g. residential use). Rules about subletting should be clarified in this section.
- Compliance with Laws and Regulations – Outline the different areas that the landlord and tenant must comply with, for example: Health and safety, planning permissions, fires safety and waste disposal.
- Termination and Renewal – Include the grounds for termination as well as for contract renewal. It should also state whether the lease is protected under the Landlord and Tenant Act 1954, which grants security of tenure.
- Dispute Resolution – Simply put, this section should outline how any disagreements between the parties should be handled and who will cover the legal costs.
- Schedule of Condition – A schedule of condition (i.e. photos and reports on the property condition) should be attached to prevent disputes at lease expiry.
Who can witness a commercial lease agreement in the UK?
It’s all well and good getting your commercial property lease agreement in order, but you need someone to witness it once completed.
The rules for witnesses follow the typical rules under common law. First and foremost, they must…
- Be over 18 years old
- Be of sound mind and capable of understanding the nature of the document
- Be independent (not a party to the lease)
- Not be related to the signing parties (to avoid conflicts of interest)
Witnesses are commonly a friend, neighbour, notary or other legal professional.
What is the governing law of my lease?
The governing law of a lease is determined by the jurisdiction where the property is located, regardless of the jurisdiction where the landlord and tenant reside. For example, it should be clear as to whether it is for England and wales (or Scotland), which may have differences in the way they treat the agreement or formulate it.
Download your free commercial lease agreement template for the UK
All in all, commercial letting agreements can be complicated until you get used to drawing them up. That said, however, even if you are an old hand, a template can save a lot of time. Download your free commercial agreement template today, and save yourself the headache of starting from scratch.
