Commercial leasing strongly features in Mitchells Roberton’s services. We are instructed by a wide range of commercial clients including sole traders, partnerships, retailers, companies, institutional sector majors and financial institutions.
Commercial leases can be complex and it is very important that you fully understand the rights and obligations that they create to avoid unwelcome consequences. By taking legal advice on the drafting, negotiation, extension or termination of a lease you can prevent disputes or litigation. We act for both landlords and tenants and deal with all types of properties from single units to multi-occupancy developments.
The economic climate in recent years has been demanding for the commercial property sector and our commercial property team are aware that clients need expert advice delivered speedily and efficiently as the elements of a deal can change quickly. Our experienced team will respond rapidly and imaginatively.
When drafting or negotiating a commercial lease there are many issues to take into account. Each lease is different but there are common issues arising out of agreements between commercial landlords and tenants. We would draw your attention to some of these.
What is a Full Insuring and Repairing Lease?
A Scottish lease will usually contain all the terms of the letting and it should expressly state the landlord’s grant of a lease over the property to the tenant for a set period of time and for payment of rent. A full description of the property being leased should be narrated to include any fixtures and fittings and also any rights of access, rights to utility services and to exclude specific rights reserved to the landlord. A Full Insuring and Repairing Lease is the most common type of commercial lease in Scotland. This type of lease means that the tenant is obliged to keep the premises in good order and repair and trade legally and constantly throughout the lease. Any repairs requiring to be done will be the responsibility of the tenant. The landlord will take out the insurance of the premises but the premiums for that insurance will be paid for by the tenant. The tenant will also be responsible for the commercial rates, the payment of costs of any local authority repair notices served during the period of the lease as well as most costs of the upkeep of the building. The tenant may also be responsible for a service charge. This should be carefully looked at as a low rent may mask a high service charge provision.
Should you have the premises surveyed before entering into a lease?
There are two very good reasons for having the property surveyed.
Firstly it will confirm that the rental and other financial considerations asked for by the landlord are fair and reasonable.
Secondly the survey will highlight any suspected or actual defects or areas of disrepair in the property. This is very important as at the end of the lease it will be the tenant’s responsibility to make good any defects and leave the premises in a good tenantable order which is the state the premises are assumed to be in when the tenancy commences. A detailed survey of the property is the tenant’s best safe guard to avoid disputes regarding the condition of the property at the commencement of the lease and it will help in negotiating a limitation to the Schedule of Dilapidations. It is also important to find out if the common parts are in a state of disrepair. When a tenant is paying a service charge the tenant is also likely to be paying a share of the maintenance and renewal of the common parts in the service charge. If the tenant chooses not to get a survey then there is a risk that the tenant ends up with an unexpected high service charge bill or the landlord denies at the end of the lease that there were any defects when the tenant took over the premises.
What is a Schedule of Dilapidations?
This is an item which is extremely important and is one that can sometimes be a shock to the tenant. While technically in terms of most leases the landlord is able to come in at any time, inspect the property and then serve on the tenant a Schedule outlining all the repairs requiring to be done, in practice this is often done at the end of the lease. The landlord will inspect and then serve a Schedule of Dilapidations which will deals with many different defects and repairs, some of which may not be the responsibility of the tenant. Tenants should never assume that everything on the Schedule is their responsibility and it is important that any Schedule of Dilapidations is examined very carefully. If the lease is a full repairing and insuring lease then it is much more difficult for the tenant to resist responsibility. It may also be the case that the original friendly landlord has sold his interest to a new landlord who is only interested in making the most out of his property.
In whose name is the lease to be?
Whilst you as a tenant may assume that you personally should be the tenant you may prefer to consider the possibility of creating a new limited company (or using the one you already have) as the actual tenant. If the tenant is a limited company then all legal liabilities will fall on the company . The risk is placed on the company so that if the business fails or you cannot continue with the lease then the landlord can only take enforcement action against the company and not against the tenant personally. However with a new or newish company most landlords will ask for a personal guarantee for rent or seek a hefty rent deposit.
Alienation- the Lease provisions that govern the tenant’s ability to assign or sublet the property which is let.
This is a crucial clause. The tenant has no right to surrender his interest in the lease unless he has been granted a specific right to do so. The most usual situation is that if the tenant wants to dispose of his interest in the lease he must find someone else to take it over. From the tenant’s point of view an assignation is the best option as the new tenant will assume the full obligation of the tenant under the lease and relieve the outgoing tenant of all responsibilities. If the landlord has good grounds for refusing permission to the assignation then the tenant may sub-let the property. This means that while the original tenant is still liable to the landlord in terms of the lease the tenant can impose similar obligations on the sub-tenant.
Generally speaking in Scots Law one should not assume that a person will act reasonably unless it is specifically stated. It is therefore essential that you get sound legal advice when a lease is being drafted. It is always better to make sure that the landlord’s discretion will be exercised reasonably by specifically declaring this to be so. This can be vital in connection with obtaining the landlord’s consent to an assignation or perhaps when a tenant wants a change of use of the property. If the landlord’s consent is qualified in that it cannot be unreasonably withheld, the tenant might well be able to argue that it was unreasonable for the landlord to withhold consent on that basis.
Termination of a lease. What is Tacit Relocation ?
A lease does not just automatically terminate when it comes to an end. It is necessary for either the tenant or the landlord to serve notice on the other indicating that they are intending to end the lease. Forty days’ notice is the minimum period of notice required although a longer period of notice may be preferable. If the landlord or tenant fails to give the appropriate notice then the principle of tacit relocation may apply, this is also known as silent renewal. If no termination notice is served the lease will continue under tacit relocation on the same terms including the rent payable. If the original lease was for a period of one year or more the lease will continue for one year. If the lease is for less than one year it will continue for the same period of the lease. Tacit relocation will continue from year to year until the appropriate notice to terminate is served. Link to article on silent renewal
Becoming a commercial tenant or landlord is a big step and our experienced commercial property team are here to help you with the drafting , negotiating and assignation of leases. We can advise on lease extensions and renewal of existing leases. At Mitchells Roberton we can also give guidance on termination of leases, rent reviews and on any other aspect of commercial leases in Scotland.
Leasing a business property? Contact one of our experts now.
Related legal advice for businesses.
- Commercial purchase
- Commercial sale
- Business start up advice
- Partnership and limited company
- Business finance