Partner, Tony O'Sullivan recently wrote an article for Business Plus on the importance of fully understanding your obligations when entering a lease. Read the original article here or below.
While a commercial lease may seem like a standard document, there are typically some very onerous obligations on tenants contained in most leases. The following are some of the key terms, which should be reviewed carefully before signing the lease.
Term
The tenant should ensure that the duration of the term suits their needs. The tenant may wish to request a break option, whereby the lease is determined before the end of the term. The break option will be subject to conditions set out in the lease and may be subject to a penalty payment.
Permitted Use
Generally, a lease will dictate what business activity can be conducted from the premises. The tenant should confirm this fits with their current business and any future development. The tenant should avoid narrow user clauses that may affect the marketability of the lease should they wish to dispose of it in the future.
Rent And Rent Review
Rent reviews typically arise every five years. Tenants should beware of any ‘deeming provisions’ providing that revised rent will be deemed to be a specified amount where one party fails to take a particular action. Upwards-only rent reviews were abolished in 2009. However, upwards-only rent reviews are still effective where the lease was in place before 2009.
Service Charge
A tenant should ensure that the landlord can only recover reasonable costs, fees and expenses incurred on the property through service charges. A tenant could request a provision obliging the landlord to submit certified accounts with details of the service charge expenditure, or seek a clause permitting them to request an independent audit.
Alienation
A standard alienation clause will provide that the tenant cannot assign sublet, part with or share occupation of the entire or part of the premises. However, the landlord cannot unreasonably withhold consent to assignment or subletting of the entire premises. A tenant should look for an alienation clause that is not unduly restrictive. In some cases, if the tenant is a company, the landlord will try to prevent a change of control – this should be resisted.
Repair
A repair clause typically requires a tenant to ‘maintain and repair’ – or to ‘put and keep in good repair’ – the premises. At any time, the landlord may serve a schedule of dilapidations, outlining what they believe should be repaired by the tenant. An onerous obligation, this should be negotiated by the tenant.
For example, the tenant could insist that they not be required to return the premises in better condition than it was in when the lease was granted. This can be documented by annexing a schedule of condition to the lease.
Insurance And Indemnity
The landlord will typically insure the premises and the cost of the premium will be passed on to the tenant. The tenant should review the policy and confirm that the entire premises, including common areas, are covered. The tenant may be required to indemnify the landlord for loss arising due to the tenant’s use and occupation of the premises, or any breach of the tenant’s covenants. The tenant should have their own insurance to cover any such claim.
