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Commercial tenancy agreements and the law made simple

According to figures from the British Property Federation, the average length of a new commercial lease was 6.8 years in 2014 – dropping from 9.6 just 15 years earlier.

It suggests both commercial landlords and tenants need to remain clued up on the latest legal developments and legislation around tenancy agreements, because they could need to read over them more frequently than they may think.

However, hiring an experienced commercial property solicitor can mean you don’t have to. They can use their knowledge of all areas of property law to deal with tenancy agreements – anything from drawing up, to reading, to negotiating – leaving you to get on with running your business.

A tenancy agreement is a vital document that aims to protect both parties’ interests. Before you even look for a tenant (if you’re a landlord), or a property to rent (if you’re a tenant), you should seek legal advice to ensure it does exactly that. The experts at First4lawyers are here to advise you.

What is a commercial tenancy agreement?

A commercial tenancy agreement is a contract between a landlord and a tenant. It lets the tenant run their business in a commercial property on the condition that they pay rent and follow the rules.

The tenancy agreement sets out the legal terms and conditions of the tenancy. It can take the form of either a spoken or written agreement.

What should be included in a tenancy agreement?

Written tenancy agreements should include:

  • Name of the landlord
  • Name of tenant (or company name if appropriate)
  • Address of the rental property
  • Date the agreement begins
  • Term of the tenancy (how long it will last)
  • Responsibilities of the tenant
  • Terms of rental increase
  • Rent amount and due date (usually monthly or quarterly)
  • Services provided (such as maintenance and repairs)
  • Any service charges
  • Length of notice to quit (statutory rules may apply depending on the type of agreement)
  • Forfeiture clause (this is a rule under which the landlord can end the tenancy)

What are the laws governing tenancy agreements?

There are many statute laws regulating leases. The most important ones for commercial property are the Landlord and Tenant Act 1954 and Agricultural Tenancies Act 1995 (for agricultural businesses).

The effect of these laws is to reduce the power that a landlord has over the tenant by increasing the tenant's rights.

What are the lengths of commercial tenancy agreements?

Although the average length in 2014 was 6.8 years, most commercial leases have fixed terms that vary from as little as six months to as long as 125 years. The landlord and tenant will usually negotiate the length of the fixed term between before creating the tenancy agreement.

A lease with a fixed term of more than 30 years is known generally as a ‘ground lease’. In the case of a business tenancy, a short term agreement is usually of more benefit to the tenant than to the landlord. After all, the process of finding tenants costs money, both in the sense of the search itself and in the associated legal fees.

Landlords largely prefer longer term leases as they reduce the possibility of the property being left vacant and thus reducing cash flow.  

Property investors give greater valuations to properties let on long term leases because they perceive the risk of the tenant leaving to be lower.

Tenants may prefer short term tenancy agreements because they give them the flexibility to move elsewhere if their circumstances change; for example if their business starts to outgrow the space.

Can the tenant sell their interest in the lease?

This depends. It is common for the landlord to include express terms in the tenancy agreement which restrict the ways in which their tenants can deal with the lease. Often a tenant will not be able to sell (also known as ‘assign’), sub-let, grant security over the lease, or share occupation without the landlord’s consent.

Can the landlord negotiate an existing lease?

If as a landlord, you acquire an existing lease, you should know that its terms are not usually negotiable. However, we would advise that you review the lease terms with care as they may have an adverse effect on the value of a property if found to be too restrictive.

I want legal advice with regard to drawing up a tenancy agreement – where should I go?

You are right to seek legal advice, as commercial tenancy agreements are complex.

With this in mind, you should seek the advice of specialist commercial property solicitors. Here at First4lawyers, we can assign experts with a wealth of experience in dealing with situations just like yours. Whether you’re a landlord or a tenant, you can contact First4lawyers

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