3 Top Tips for Landlords and Tenants

At the end of the year your thoughts may be turning to the new and exciting opportunities which await you and your business in 2018. Whether you are a Tenant or a Landlord, you may have thought about expanding to a new location, becoming a Landlord with a new property in your portfolio, or you may have a lease which is due for renewal -  Rebecca Inglis, Commercial Property Associate Solicitor at our Spalding Office, can provide some tips to ensure you are in the best position when negotiating.

1.         The Rent

It is common for Tenants and Landlords to assume that only the cost of the lease is payable monthly, or quarterly, as rent. However, thought should be given as to whether there are other regular costs which will be claimed in addition to the baseline rent amount. VAT, buildings insurance premiums, service charge and utilities can all come at an extra cost and, if they are included within the definition of ‘rent’ in the lease, can cause problems if they are paid late, or not at all.

Landlords: ensure that you are clear about what the headline rent figure will and will not include. Make sure that any additional costs are included within the definition of ‘rent’ in the lease.

Tenants: any additional costs which are included within the definition of ‘rent’ must be paid on time and in the correct manner. If not, the Landlord could claim that the rent is unpaid, even if the headline figure is settled on time.

2.         The Term

The term stated in the lease does not necessarily mean that the Tenant will have possession of the premises from one date to another. The Landlord and Tenant Act 1954 provides security of tenure for Tenants, meaning that they are automatically entitled to a new Lease at the end of the lease term. Landlords can include a clause in the Lease which prevents that law from applying to the lease (known as ‘contracting out’), however this can be both helpful and harmful and it is important to give it serious thought.

Landlords: if you would like the comfort of knowing that you could still have a Tenant at the end of the Lease, you may decide that you do not wish to ‘contract out’ of the 1954 Act provisions. However, if you do not ‘contract out’, you can only object to the renewal on very limited grounds and it can therefore be difficult to take possession once the original Lease has expired.

Tenants: it is probably in your interest for the lease not to be ‘contracted out’ as this provides you with the opportunity to choose whether you wish to take a new lease at the end of the term - you retain an element of control. If the Landlord does ‘contract out’ it is vital that you seek appropriate advice and ensure you are aware of the consequences of taking the lease under those circumstances, especially if you are planning to make improvements or if you have found the perfect location which you don’t want to lose when the lease expires!

3.         Break Clauses

Break clauses allow one or either of the parties to end the lease part way through the term, should they wish to. They can mean that there is an added flexibility which could be desirable to a future Tenant; but with flexibility can come uncertainty. It is important that you are advised properly about what a break clause could mean to you and your business before the lease is signed.

Landlords: a break clause will probably be attractive to a Tenant, especially if their business is new or they are branching out to a new location. However, it is important to consider the impact on you should the break clause be exercised – there could be a period in which you are not receiving rent whilst the property is re-advertised and the new lease negotiated.

Tenants: a break clause might give you some peace of mind but beware of stringent break clause provisions in the lease. These could mean you can only exercise the break if, for example, you have complied with every single covenant in the lease. You might not be able to meet these strict requirements and your break clause could be meaningless - carefully consider the break clause wording before the lease is finalised.

If you would like to discuss any of the issues mentioned above or have other questions relating to landlord and tenant situations please do not hesitate to get in touch.