Commercial shop contract advice?

by Readers Question

14:00 PM, 19th September 2019
About 4 weeks ago

Commercial shop contract advice?

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Commercial shop contract advice?

I have just acquired a small shop and wondered if anyone has advice on Commercial contracts?

Up to now I have only rented residential flats or houses.

What about deposits?

To try and encourage a longer lease I am discounting the rent if the tenant leases for 2 years or more. How do I detail that in the contract?

Notice periods?

What checks do I need to do?

Anyone willing to share a template contract I can look through as a start please?

Many Thanks

Jennifer



Comments

Graham Bowcock

14:12 PM, 19th September 2019
About 4 weeks ago

Jennifer

This is perhaps more complicated than you imagine. I have seen many homemade agreements, but they end up not being worth the paper they are written on.

A commercial lease is a very different animal to a residential lease, the good news being that you have freedom to agree terms with the tenant. These can include a Full Repairing and Insuring (FRI) basis which is great for the landlord.

You will need to have some regard to the tenant's current situation though. Commercial leases are subject to "contracting out" which relates to security of tenure. You need to understand if the current lease is contracted out or not. If it is then you have the right to end it when the fixed term expires. If it isn't then the tenant can apply for a new lease on the same terms (save as for rent) and the landlord has limited grounds to object.

If the current lease is not contracted out then your new lease cannot be contracted out (but I have seen differing opinions on this point). This may not matter if the aim is to keep the property let, but more of a problem should you ever want to get it back.

Deposits are not covered by legislation, so you can hold yourself (ideally in a separate bank account).

Don't forget that you need a valid EPC (E band or above).

I strongly suggest that you get a solicitor to draft the lease as they will cover all the points you raise, and many more. This is particularly important should you ever wish to borrow money against the property; the lender will want all of the paperwork in order. To make things easier, set out all heads of terms that you agree with the tenant, so that your solicitor has an easier job, for example full (and accurate) tenants' names and addresses, agreed rent, rent reviews, repairs, services, service charges, shared facilities, etc. etc.

Ian Narbeth

15:22 PM, 19th September 2019
About 4 weeks ago

Jennifer
Graham makes some excellent points. Please, please get professional help. If you don't you can end up damaging your own interests and may be stuck with a tenant on unsatisfactory terms. Anyone who offers you a "template contract" for you to fill in and work from on your own is doing you a disservice.

Hedley

16:58 PM, 20th September 2019
About 4 weeks ago

I agree with the above - you should not try to deal with a commercial lease using a template and, as you are not conversant with this type of property, you should seek professional help - whether this be a Solicitor or Chartered Surveyor. I would add that the majority of commercial leases are not contracted out and the tenant has extensive rights to a renewal lease, subject to certain exceptions. They also have the right to ask the court to set the new terms if the landlord and tenant cannot agree. I will not go into details, suffice it say - get advice!

Puzzler

8:48 AM, 22nd September 2019
About 3 weeks ago

Yep, find a commercial managing agent, please

Larry Sweeney

7:56 AM, 23rd September 2019
About 3 weeks ago

Jennifer, I agree with all of the above . In the event of a tenant defaulting on rent under the terms of the TCE (Tribunal courts and enforcement act) you can employ a certificated enforcement agent to forfeit the lease. This obviates the need for court proceedings.

Hedley

15:45 PM, 23rd September 2019
About 3 weeks ago

Larry
unless the tenant subsequently applies for relief against forfeiture, in which case the court would be involved.
All the more reason to use a professional to advise if and what action to take and when.
In the matter of lease renewals and rent reviews, it is very important to employ a Chartered Surveyor. If there is a dispute (in rent reviews) which the parties cannot resolve, leases normally stipulate that it should be decided by a Chartered Surveyor acting either as an independent surveyor or arbitrator and if the parties cannot agree on the surveyor to use, the president of the Royal Institution of Chartered Surveyors is to appoint one.

Larry Sweeney

8:03 AM, 24th September 2019
About 3 weeks ago

Thanks Hedley, i did not intend to get in to an indepth discussion on the provisions of the TCE , I was simply pointing out that there is a quick simple remedy for dealing with rent defaulters. As regards applying for relief , it must be done promptly and few tenants who owe arrears take this route , for relief to be granted by the court the arrears would need to be discharged. The TCE also allows for the landlord to instruct an EA to take control of a tenants Goods although this provision is pretty much useless as notice must be given, thus allowing a defaulter to move his chattels to safety.

Hedley

12:28 PM, 24th September 2019
About 3 weeks ago

Agreed Larry. All this just goes to show that it is not sensible for an amateur to deal with commercial property management.


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