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So… you’re entering into a new Lease of commercial premises and you’ve decided not to instruct a solicitor. After all, it’s an additional cost which your business could do without and what’s the worst that could happen?
Commercial Leases are often very long documents, usually 50 pages plus and hard to interpret unless you are experienced and trained. Often Tenant’s entering into leases of commercial premises will not instruct a solicitor to act on their behalf due to the additional expense, however, not instructing a solicitor could end up costing a Tenant more in the long run. Given that Leases are drafted by the Landlord’s solicitors, they are typically Landlord biased. A solicitor will be able to highlight any unfavourable terms to you and generally amend the Lease to make it more Tenant friendly.
Many Leases are compulsorily registerable at the Land Registry e.g. leases for more than 7 years. If you decide not to instruct a solicitor you may not be aware as to whether the Lease requires registering at the Land Registry or how to go about this. There are a number of consequences if a registerable lease is not registered and you should therefore seek legal advice if you are unsure.
Although SDLT is a self-assessment tax, some Tenant’s may not realise SDLT is payable on the grant of a lease (depending on the term and/or rent). Your solicitor will be able to advise how much SDLT is payable (if any) on the grant of the Lease and complete your SDLT return on your behalf as your agent. It is important you are fully aware of your stamp duty liabilities as late payments can lead to penalties and interest charges.
Often, for a variety of reasons, the Tenant may wish to get out of the Lease before the expiry date. If the Lease prohibits assignments (transferring the lease to a new Tenant) and underlettings and there is no Tenant option to ‘break’ the Lease this may be difficult, if not impossible. Your solicitor will be able to explain if, and how, you will be able to terminate the Lease or assign the interest to someone else and can help you to negotiate the relevant clauses to make them more Tenant friendly.
Does the party purporting to be the Landlord even own the property and have the right togrant the lease? If there is a charge over the property, is their lender’s consent required before a Lease can be registered? It is important that the title to the property is checked before a Lease is entered into.
Your solicitor will also request ‘Replies to Commercial Property Standard Enquiries’ (or CPSE’s) from the Landlord which are a list of standard questions relating to the property and the transaction. These will reveal, for example, how the current use of the property is authorised under planning legislation, whether VAT will be payable on the rent, whether an asbestos report is available, details of insurance and the business rates payable etc.
Depending on the rent and term, it may be prudent to carry out property searches on the land you intend to Lease (as you would if you were purchasing the property). Depending on the searches you undertake, this could reveal a number of things such as road adoption, planning history (you don’t want to get into the premises to start trading as a retail shop to find outyou can only use the property as offices), whether the property is connected to mains water and drainage, whether there are any contamination issues or flood risks at the property and much more. Your solicitor will be able to submit searches on your behalf and assist in interpreting the results.
Often Landlords wish to ‘exclude’ leases from sections 24-28 of the Landlord and Tenant Act 1954 (LTA1954) which relate to security of tenure. If a Lease is excluded,the Tenant will have to vacate the premises upon the expiry of the Term. It may be imperative to the success and goodwill of your business (especially in the case of retail shops/restaurants) that at the end of your Lease term you are able to take a new Lease of the premises and remain in occupation.
The repair provisions in the Lease are important to consider as the lease may be drafted so as to require the Tenant to put property in a better state of repair and condition on the expiry of the Lease than it was in at the start, which of course could be very costly. Your solicitor can help to amend the Lease to prevent this, perhaps by reference to a photographic schedule of condition.
The above are just a few of the many points to consider when taking a new Lease and highlight the importance of taking legal advice before entering into a legal document.