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With MIH moving to new offices, and on the brink of signing up for their first commercial lease we began to think about commercial leases in general. Even for us, as seasoned commercial property managers, we find leases daunting and therefore we thought it would be a good idea to write a blog to try and guide you through what could be described as a minefield.
For a landlord looking to grant a commercial lease, there are four main options, a traditional commercial lease, a periodic tenancy, tenancy at will and license to occupy.
The traditional commercial lease is perhaps the most permanent option when renting a commercial property. It is the longest of the commercial leases available and is often the most complex. This can be used for lettings from 1 -25 years, although this length of tenure has become increasingly rare.
The biggest difference between this lease and the others described below is that the owner of the lease has exclusive possession rights over the property and the landlord can only access the property on specific terms set out in the lease.
Often as a result of a formal commercial lease, a periodic tenancy is created. As the name suggests this is a tenancy that is most likely to have arisen as a consequence of the previous lease.
Frequently this is a result of where a tenant remains in occupation of a premise, continuing to pay the rent despite the lease having come to an end. Alternatively, it may be that the tenant has been able to take occupation prior to a formal lease being granted or agreed.
The length of the tenancy and the notice period will be determined by the frequency of the rental payments i.e. monthly or quarterly payments. The drawback for the landlord with this arrangement aside from there being no fixed tenancy is that a tenant in this situation may be able to claim additional rights to the property via the L and T act 1954, which requires that the formal procedure be followed to bring a tenancy to an end.
Another option for a landlord is a tenancy at will, which allows a landlord to let a property without defining a defining a period of tenancy. In the absence of a formal tenancy period, the landlord or the tenant can end the tenancy with as little as one months’ notice or whatever notice is defined in the agreement.
While a tenancy at will can be agreed upon by the parties, a landlord has to be aware that inadvertently a periodic tenancy could be created, and again, the same drawback is that a periodic tenancy is created and the tenant is entitled to the rights as set out in the L & T act 1954.
Finally, there is a license to occupy. This is an agreement where the landlord and the tenant coexist in the same office but stops short at a landlord-tenant relationship. Rather than being a tenant and landlord relationship, the relationship is instead one of licensor and licensee. There is no right to occupation of the premises and the licensor can access the property at will. The benefit to this is that it is simple and shorter than a commercial lease however there is decreased security for both parties.
When granting a Lease, in whichever form, consideration should be given to whether to opt-in or out of the L and T Act 1954, what the rights of renewal or purchase are, what conditions need to be met at the end of the tenancy, and whether to carry out a schedule of condition.
Whichever tenancy a landlord decides to offer, a solicitor should always be engaged to advise on the potential pros and cons of the leases and to ensure that the rights of the landlord are protected. Consideration should also be given to getting the managing agent involved from the start so that they can comment on the practicalities of the lease terms.