There are a lot of costs involved for a tenant when considering taking on a commercial lease – you may be paying a premium, a rent deposit, and may also have agreed to pay a contribution towards the landlord’s legal costs. But what are the dangers of not taking legal advice as a potential tenant?
It is important to have a dedicated legal advisor who has your business needs in mind when negotiating the terms of a commercial lease. For example:
- Is it essential that you can make changes to the property without needing the owner’s consent?
- Do you need to be able to display your business signs at the property?
- Do you want the right to stay in the occupation of the property at the end of the term?
Without legal advice, you may not be aware of the risks and possible implications of accepting certain rental conditions. What may appear to be minor typographical changes to a lease can have far-reaching implications for how a lease will work in practice. For example, will you be required to use “best efforts” to do something? This is a very high legal threshold.
Taking legal advice on the title itself will also allow you to confirm that the landlord does indeed hold the interest in the property and is therefore able to grant you a lease. They can ensure that the consents required to grant the lease to other parties, such as a mortgage lender, are also obtained.
What about your rights under the commercial lease?
It is imperative that a lease grants you sufficient rights to be able to use and enjoy the property in the way you intend. Are there sufficient rights to access the Property? Can you use the shared facilities? Are you allowed to use the stairs and hallways? Can you use the parking spaces? If you don’t fully consider this, you could take out a lease and find, once in occupancy, that you don’t have all the rights you need to be able to use the property properly.
Are there any additional fees involved besides an annual rent?
Many commercial leases will require the tenant to reimburse the landlord for costs incurred in purchasing insurance and costs incurred in providing services such as maintenance of common areas and upkeep of the grounds of the estate. Does the landlord have the possibility of revising the rent? Taking legal advice upfront means you’ll have a much more complete appreciation of those costs involved in the lease.
Have you informed HMRC of your commercial property transaction?
The danger of not consulting a lawyer is the risk of failure to notify the HM Revenue & Customs (HMRC) of a transaction. Although the granting of a lease does not always trigger the payment of stamp duty land tax, in certain circumstances you must still inform HMRC of the transaction by completing a land declaration form. Failure to do so could result in fines payable to HMRC.
Have you registered your commercial property lease?
Leases must be registered if the lease is for a term of more than 7 years from grant, or if the term begins more than 3 months from the date of grant. It is usually the tenant’s obligation to register the lease, but in all cases the legislation tells us that it must be registered within 2 months of completion.
If the lease is not registered, it will only take effect as a lease agreement and only in equity and will not operate in law. This means that a tenant will not hold the legal interest and ultimately if a landlord sells their interest, the lease will not pass to the new landlord.