Commercial Leases: I am renting out my shop to a new tenant and I want to buy a lease. Can I buy one “off-the-shelf”?
This is a common question we get asked. It is possible to buy commercial leases “off-the-shelf” – a standard form lease. The Law Society do two standard form leases for commercial lettings: a whole of building and a part of building lease.
However, good advice for commercial landlords – be careful with standard form leases.
Contrary to popular belief there’s really no such thing as a standard form commercial lease.
Every commercial letting is different and usually the end result of negotiations -professionally drafted leases are complex and contain hundreds of mini agreements (clauses).
What many new landlords fail to appreciate is that a commercial letting can last pretty well indefinitely. A business tenant has security under the Landlord and Tenant Act 1954, so once let on a poor agreement the landlord will have a very long time to regret his lack of judgement and consequent lack of control.
Also, the lease is, in addition to the quality of the tenant, one element of the covenant strength of the letting. Therefore, for an investment property a good lease agreement is essential because it adds value.
A comprehensive lease drafted by a specialist commercial lawyer will run to many pages (30 to 50) with added schedules of condition including photographs. It will cost anything from £500 upward, more likely £1000.
That’s a lot of money if you were expecting to buy one off-the-shelf for twenty quid!
With the traditional institutional commercial lease it was always customary that the tenant paid all the legal costs – the landlords and his own.
With modern lettings and those on a smaller scale this is often too much to ask of a tenant, especially where it’s a new business. A good practical modern compromise is for each party to pay its own legal costs and the cost of the lease is split 50/50.
In practice, the party drafting the lease takes the initiative all the way through the negotiations. The other party is then in a position where he must respond, so every effort should be made to control the drafting on your own side. What should be avoided though is a situation where the lease agreement is continually batted backwards and forwards between solicitors thereby adding considerably to costs.
Yes, a lease is expensive but for any sort of substantial letting it’s well worth it. It is also a test of the tenant’s commitment – if he’s unwilling to pay towards a decent lease he’s unlikely to be a good long-term commercial tenant.
Note: never rely totally on these standard answers. Before taking action or not, always seek professional advice with the full facts of the case and all documents to hand. LandlordZONE.co.uk