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For most people the most important legal transaction in their life is buying their home. This is generally because the value of such a transaction far outweighs any other. For many businesses the most important transaction is the negotiation and leasing of their business premises. This is because it involves not only a long-standing commitment to pay a considerable outlay, but also a responsibility for a building which they occupy but do not own.
It is important for any business considering a lease to take legal advice at an early stage. The market for leasehold property has changed over the last 10 years and Tenants are now in a much stronger position to negotiate better terms. A Solicitor can help in this negotiation process to get for the Tenant such incentives as rent free periods, early termination clauses and the softening of obligations to repair the building. Most Landlords in today’s market are willing to concede on a number of these issues if that is required to obtain a Tenant of reasonable standing and a lease of reasonable length.
Lease documents themselves may be daunting in that they often run to 30, 40 or 50 pages. Such Leases are drafted by the Landlord’s agent, and although in some respects standard in their terms, they tend to be designed to ensure that the Landlord passes to the Tenant all responsibility for the maintenance of the property and compliance with various statutes.
All prospective Tenants should be aware that in taking on a full repairing and insuring lease they will be responsible for the maintenance of the building, its repair and its compliance with statutory obligations. Their responsibility will be to maintain the property in “good and Tenantable condition”, which means that essentially the Landlord can ask the Tenant to carry out any repairs that are deemed reasonable. In addition most Leases will require the Tenant to decorate the internal parts of the property on a five yearly basis and the external parts on a three yearly basis. This is probably in excess of what an owner would expect to do.
In addition Tenants should be aware that they may be responsible not only for the property they occupy but also any common parts, such as common access ways, common stairs, common walls and the roof of the building. This may seem unreasonable, and often where a Lease is for 5 years or less it would be prudent to seek an internal repairing obligation which would transfer the obligations to maintain such common parts to the Landlord. In addition, where a Tenant is taking on a property which is not in good condition it is a good idea to write in a clause so that it need only be maintained in the state it was in at the date of entry, and to attach to the Lease a photographic schedule of its condition.
Standard full repairing and insuring leases also require the Tenant to comply with statutory regulations. This may seem obvious, but when taking on an older building it is most probably the case that it will not comply with current fire, health and safety, and disabled access regulations. Although the authority may have no interest in this it is nonetheless an obligation of the Tenant to ensure that the building complies with all regulations which relate to the property. It is therefore prudent to have the property surveyed prior to completing the negotiation process to check that there are no major issues with compliance, and to request from the Landlord in certain cases an environmental report, asbestos report and energy performance certificate. In addition, the Surveyor can also advise in relation to the state of the common parts and the property itself, and indeed the proposed rental value.
A further important issue relates to the termination of the Lease at its expiry. Oddly, although the Lease may have a specific termination date, it will not expire on that date unless either the Landlord or the Tenant serves notice on the other to that effect. Notices to be served require to be in a specific form, and therefore again legal advice should be sought prior to sending them . There are also specific deadlines in relation to the service of notices and therefore the matter should be looked into well ahead of the proposed termination date.
It is very much the case that the principal of “buyer beware” applies in purchasing a Leasehold interest. As with purchasing a home, a Solicitor is invaluable to provide not only advice on the legal requirements of leases but also to ensure that any prospective Tenants are fully aware of the obligations they are taking on.
Nicholas Hooke is a Specialist Business and Leasing Solicitor at McKay Norwell WS, 5 Rutland Square, Edinburgh. If you need advice in connection with a commercial lease, give him or Niall Bruce a call on 0131 222 8000.
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