AKA should you do it alone?
Traps for Tenants: How could a commercial property solicitor help you?
Author
James Williamson
Author
James Williamson
November 14, 2023
Commercial Property
The short answer: an experienced commercial property solicitor will be able to get you the best possible deal. Most importantly: in commercial property, the risks are much bigger than the rent. So much so that differently from most activities done by solicitors, by law the advice on risk management in commercial property has to be done only by qualified solicitor who are subject to regulated standards (here).
I have written before about the risks managed by leases (here) so now I am going to illustrate this with some of the advice I have given in the last 6 months alone:
- You can always get a better deal than what they initially offer you.
Many Landlords tell perspective tenants that the proposed lease cannot be changed and therefore not to bother getting any advice from commercial property solicitors. In fact, in 20 years I have never known a lease to be non-negotiable, not least because they are usually sent out with an initial position which is unfair and expensive for the tenant.
- You need advice to understand what commercial leases mean.
You do not need a commercial property solicitor to sign a lease. You can sign it yourself, but you will not know what it means. There are many words in a lease which seem like ordinary, everyday English but actually have other meanings when they are used in a contract. For example, a clause requiring a payment to be made “on demand” does not only mean that the tenant must pay very quickly but it also means that if the tenant doubts the correctness of the request for payment, the tenant cannot immediately dispute it but instead must pay the requested money and then try to get it back from the Landlord!
- A lease for a commercial property must be tailored to each transaction individually.
That is not because commercial property solicitors go over the top: it is because every deal has a unique set of background circumstances: the nature of the parties, the state of the building, tax issues. This means that the effect of an identical, unamended lease can be different in different circumstances. For example: a client was recently wanting to takeover retail premises, but the outgoing tenant did not want to share any information. Given what we did AND did not know about the outgoing tenant’s unusual structure, my advice was as follows: “To put it another way, if we completed now, there would be a very high risk of committing criminal offences and that you lose all your money but still have no right to the property!” I admit that I have never had to write anything like that before but at the same time, I can assure you there was not a shred of exaggeration in that statement.
- Mistakes in the details come back to haunt you.
A lease had a break clause. The break clause was fine. The clause which governs service of notices was not fine for this particular Landlord. There was no way to safely serve the Break Notice except to serve it both in London and in Asia, the latter using service agents. Failure to do it safely would have meant continuing the lease for 5 more years! This was not legally negligent by the original lawyer, but they did miss a trick and it was very expensive to fix.
- You might take on the risks for other people’s mistakes.
Another advice I gave protected my client from having to pay for the possible mistakes of a contractor that they never hired on works which they did not even know about. Such costs can be so high as to make instantly insolvent a business which had thrived for 15 years. The lease stated as part of the service charge, that the tenant would pay 50% of the costs of repairing and maintaining the structure of the building. Nothing unusual in that clause. However: the Landlord’s lawyer had stated no construction had taken place at the building… but that was not true. Buried away on page 9 of one of the property searches was a building regulation certificate for completed structural works that had been completed only 4 months previously. Fortunately, I habitually read all the searches and advise clients accordingly. If not, the tenant would have been on the hook for anything which went wrong with the building resulting from the construction! Bear in mind that the new structural elements were major works, and a construction mistake would have taken down most of the top floor. In that case, costs are only covered by the builder (or the project company of the builder) to the extent it is not insolvent and have valid insurance to cover it; and the regular buildings insurance would not cover construction mistakes.
- Past is Prologue
A lease stated as part of the service charge, that the tenant would pay 30% of the costs of repairing and maintaining the structure of the building. Again, nothing unusual in that clause. However, this building had never been professionally managed, was going to be manged by the owner personally, no significant works had been done in the last 10 years and the Landlord would not give details of the amount of recent service charges. In other words, no-one knew if the building would need a new roof or other such issues. Under the terms of the lease, the Landlord would not have cared but simply sent the invoice on to the tenant. When pressed for a cap on the service charge, the answer was an annual amount higher than the rent! This being a shop in central London, so the rent was not cheap. Perhaps surprisingly, I am fairly sure that there were no nefarious intentions, and the cap soon came down to sensible levels but again, a well-respected business could have collapsed at any moment simply because they had no specialist lawyer to spot the risks and protect them. This just one example of a much wider theme affecting all matters great and small as illustrated here.
- Solving problems is more expensive than doing it correctly in the first place.
A lease had a standard service charge and a side letter for the Landlord to improve the fire safety. The Landlord never did the fire safety works and the managing agents refused to provide certificates of regulatory compliance for the fire safety, lifts, etc. (even though they did charge for it). Unfortunately, this tenant was in an unusual industry and had unusual clients, so this was a huge problem for them. I did, of course, solve this but solving problems is more expensive than doing it correctly in the first place.
At EM Law, we are experts in all types of commercial property transactions. If you are interested in more details on the assistance we provide, my colleague Colin just wrote a blog around this same subject (here). Should you require assistance in leasing, financing, acquiring or disposing of an interest in a commercial property, contact me via this link James Williamson.
