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Entering into a lease, whether for commercial or residential property, without consulting a lawyer is, to say the least, very unwise, as a recent case has proven.
Here, a landowner runs a serious risk of an unwanted tenant moving into his newly built house.
The man bought 40 acres of land on which to build a house, with a tenant living in a static trailer there. They were friendly so the owner agreed to stay put until the house was completed and the couple could move in.
He granted a one-year lease to the tenant, which was contracted outside the security of tenure provisions under the Landlord and Tenant Act 1954. After the lease expired, he signed a copy of the original lease, which it intended to be for another year under the same conditions as before.
However, he did not seek legal advice and did not comply with the provisions of the Notice Act.
As a result, he inadvertently granted the tenant a lease that was subject to the security of tenure provisions of section 23 of the Act. The tenant then refused to leave when the lease expired and demanded a new lease. For good measure, he said he had the right to occupy the couple’s new home because it was on land that had been granted to him by the lease.
After the landlord initiated proceedings, a judge found that the tenant had violated a number of terms of the lease. The property had fallen into disrepair and unauthorized structural additions and modifications had been made. He also ran a business on the premises without permission and continued to burn commercial waste in defiance of warnings from the local authority.
The judge ruled that the landowner has the right to terminate the commercial lease and the tenant has no right to a new one.
“From an owner’s perspective, the subcontracting arrangements are important to understand, as is the procedure for ensuring they take effect (which the owner has not done here),” said the commercial property lawyer Ben Tatters. “This is potentially a big deal for homeowners.”
At Pearson Solicitors, we systematically exclude security of tenure provisions for landlords, especially for short-term leases, in order to provide more flexibility for the landlord.
The tenant might comply with their obligations under the lease but be clumsy and not be someone the landlord wants to deal with. It also puts them in a stronger position at the end of the lease to negotiate new terms.
“If the tenant’s business is going well, most won’t want to move and knowing that the landlord can just evict them, it’s more likely that they will agree to more favorable terms for the landlord,” Ben said.
“Novice owners may not understand their responsibilities. We can give advice on what the owner should and should not agree to.
If the lender has a mortgage on the property, we can help them get the bank’s consent to the lease (which would usually be necessary).
“We would advise on whether to get someone to act as a surety (especially when the tenant is a new business) and / or to get a rental deposit to try to offer the landlord some protection in the event of a problem, ”Ben said.
“We also check that the documents are correctly signed (ie correctly attested) to be sure that they take effect,” he added.
For a tenant, many of the issues are the same. From their perspective, when it comes to security of tenure issues, it is important that they understand what they are willing to give up.
Many leases are full repair and insurance leases, meaning the tenant is responsible for maintaining and repairing the property in good / standard condition, even if it was not when he took the lease.
“Bonds can be onerous and it’s important that a tenant knows what their responsibilities will be,” Ben said.
A lease can also contain a termination clause, which allows the lease to be terminated earlier and is generally only exercisable by the tenant.
There is a procedure to follow and if you are wrong your break notice will be invalid and you could find yourself stuck in the lease for a number of additional years.
• For legal advice for landlords and tenants, talk to a lawyer who specializes in commercial real estate. Our team at Pearson has years of experience and is capable of handling a wide range of commercial property issues. Call 0161 785 3500 or email [email protected]