Commercial Tenancies – What can be charged?

As regards parallels with residential tenancies, a commercial lease is not subject to many of the rules and restrictions we face in residentials. In comparison, commercial leases are the Wild West, so its advisable to get a solicitor involved to ensure all bases are covered. Usually the tenant will be responsible for the costs of producing the lease.

I have a couple of shops and have found over the years that for commercial leases, there is nothing like the depth of guidance freely available as there is for residentials.

You’d find getting an agent involved would be money well spent. You have almost freedom to agree what you like with the tenant, so an agent should steer you through what’s commercially acceptable. You need to aim towards an FRI lease, but that’s not always practical.

Reply to the comment left by Graham Bowcock at 17/01/2022 – 15:16Getting an agent involved is asking yourself to be fleeced. As the landlord has found the tenant, why involve an agent. A competent solicitor should be able to guide the landlord through the lease and all other legal aspects.
I took up a commercial lease for an office, the agent offered 3 months rent free at the end of the first year. Only they forgot to or did not bother to clear it with the landlord.

I’m no lawyer and this isn’t legal advice, get a commercial lawyer and ask them. With that in mind…

Firstly, as I understand it, your current tenant signed a Lease with presumably several years to run but now doesn’t want to carry on because he wants to retire. The Lease cannot be assigned.

If the Lease cannot be assigned, you don’t have to agree to what is being asked.

If you do agree, you are doing the tenant a favour so it should cost you nothing and it shouldn’t weaken your rights.

Therefore if your tenant wants the agreement he should sign a personal guarantee so that you are no less protected than before. This negates somewhat the risk of the new tenant being a more risky covenant than the present one. If your tenant, who knows his employee, is unwilling to guarantee the new tenant then why should you?

Also, your current tenant should agree to pay your legal costs because why should you subsidise the cost of him getting out of the contract he signed?

You could go further and state that for your inconvenience you want, in addition to legals and guarantee, £5,000 for your inconvenience.

The commercial lawyer might well say the best way forward is to have a brand new Lease drafted between you and the employee with current tenant acting as personal guarantor.

But the above is an oversimplification so talk to a commercial lawyer, certainly not an agent.

Let us all know how this pans out.

You could agree to draw up a new Lease

Reply to the comment left by Darren Peters at 22/01/2022 – 11:49Very well written helpful advice, Darren. Engaging an agent would be madness.

My experience is that an experienced commercial agent (preferably a chartered surveyor) knows not only the market, but the appropriate terms for the property concerned and which can also vary dependant on the use proposed. I strongly disagree with the advice to only use a lawyer, it is the surveyor who is best able to advise on the heads of terms. The lawyer then drafts the lease to reflect the agreed terms.

For what’s it’s worth I agree with Hedley.

It is an experienced commercial agent that knows the current lie of the land with respect to what is achievable locally in terms of commercial property.

If your property is somewhere in the general region of the south west of London / Surrey then I can recommend one that I have used for 16 years.

While I’ll agree to differ with the two comments above, whatever terms are agreed should not be worse than you have with the existing tenant.

Whilst a good lawyer should steer you through the legal documents, it’s rare for one to visit a site; therefore their advice will be limited. An agent will inevitably inspect the property and will guide you on the market. Rent is obviously key, but there will be other terms to agree (e.g. rent reviews, repairing obligations) that stem from the commercial position, not a legal one.

A decent agent should produce formal and robust heads of terms that the lawyers then document. Due to legal fees being higher than agents’ fees this often works out more cost effective. Why pay a lawyer to negotiate for you?

Reply to the comment left by Hedley at 22/01/2022 – 16:43I agree, and would go further – a good commercial property lawyer will decline to advise on rent, lease terms etc. and will advise the client to get an agent.
A lawyer who tries to proceed without obtaining the relevant advice is not doing the client any favours, and likely the legal fees will be significantly more expensive.
Speaking from experience, employing an agent will pay dividends.