A commercial lease is a legally binding contract between a business tenant and a landlord. The lease grants the tenant the right to use the property for a specified period for business or other commercial purposes. In return for these advantages, the tenant pays rent.
The lease specifies the rights and obligations of both the landlord and the tenant. The ‘parties to a lease’ are referred to as the lessor (the landlord) and the lessee (the tenant). You may also have a guarantor or surety, someone who agrees to reimburse the landlord for any losses incurred if the tenant fails to pay rent or otherwise breaches the agreement. In this article, Drafting Commercial Leases, we take a look at the process and mechanism involved.
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What is the process of drafting a commercial lease?
A commercial lease is often a complicated and extensive document. It covers a wide range of topics, from basic information such as the names of the parties, a description of the property, and the fixed term (length) of the lease, to more complex issues such as the landlord’s and tenant’s rights, obligations, and remedies, the calculation of service charges, and rent reviews.
In general, the contents and presentation of a lease are not required to adhere to a particular format or structure. However, the lease should essentially include the contents outlined below.
Heads of terms
Heads of terms are a document setting out the primary terms of a commercial agreement reached between parties in a transaction. Heads of terms are also referred to as letters of intent and memoranda of understanding.
Before negotiating the subtler details of a commercial lease, the parties prepare heads of terms outlining the agreed-upon fundamental terms of the agreement.
Although heads of terms are typically not legally binding, the document does capture the future intentions of parties wishing to participate in a transaction. However, it does not impose any obligations on the parties.
Definitions
The lease should spell out who is entering into the lease and their contact details. The majority of leases contain a section delineating specific terms that are used repeatedly and have a specific meaning. It is more efficient to define these terms under a definition section, thereby avoiding the repetition of words and phrases that appear frequently. Words that have been defined will start with a capital letter so that they are readily identified in the lease.
Leases also include a small section to clarify any potential ambiguities in their interpretation, such as verifying that any references to a particular gender also refer to the other gender, or that a reference to an Act of Parliament includes any amendments or modifications to it. These are typically standard clauses found in most commercial contracts.
Schedules
Many of the details of the lease can be found in its schedules. These can include:
- A comprehensive description of the property
- The rights granted to the tenant, such as rights of way over the building’s common areas.
- The tenant’s obligations – this section would include a comprehensive list of obligations, generally outlining what the tenant can and cannot do to the property, and would include matters such as subletting, making any alterations, repairing and decorating, and using the property in accordance with the local authority’s permitted use.
- The landlord’s responsibilities – this would typically include clauses regarding rectifying obligations and building insurance.
- Service charges – this section would outline the services that the landlord will provide and the costs that will be allocated to the service charges, as well as the method for calculating service charges and the procedure for payment and provision of service charge accounts.
- Rent review – this would contain provisions relating to the process and calculation of any rent reviews to be undertaken during the term of the lease.
- Plans – the lease plan is sometimes attached to a separate schedule.
Are there any provisos to the lease?
Under the heading of provisos is a collection of clauses that cannot be readily addressed elsewhere in the lease. These clauses are neither in the core of obligations nor servitudes. Occasionally, the provisos are contained in a separate schedule.
Inclusion of operative clauses
This section of the lease will specify that the landlord is granting the tenant a lease on the property for the specified term, along with certain other rights, on the condition that the tenant pays the rent and complies with various obligations (promises to do or refrain from doing certain things). The landlord will also reserve certain rights and servitudes for their benefit. A detailed list specifying the rights and obligations for each party would usually be found in separate schedules.
How we can help
We have a proven track record of helping clients with drafting their commercial leases. We will guide you through the process and ensure all checks are carried out swiftly and efficiently and we firmly believe that with the right solicitors by your side, the entire process will seem more manageable and far less daunting.
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How to Contact Our Commercial Property Solicitors
You need to be well informed about the issues and possible implications of drafting a commercial lease. However, expert legal support is crucial in terms of ensuring a positive outcome to your case.
To speak to our Commercial Property solicitors today, simply call us on 0345 901 0445, or click here to make a free enquiry. We are well-known across the country and can assist wherever you are based. We also have offices based in Cheshire and London.
Disclaimer: This article provides general information only and does not constitute legal advice on any individual circumstances.
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