Ending A Lease

Ending A Lease Of Commercial Property - Legal Aspects

Ending a lease doesn’t mean your liabilities are over and you have nothing more to pay. Thinking this way is a common mistake that businesses make. In fact, there may be some very expensive bills, so this stage needs to be approached in a carefully planned way. The lease sets out most of what the tenant has to do but it may also be silent on other things that will happen and which may cost the tenant dearly.

Be Prepared When Ending A Lease

Above all, be prepared well in advance! If you decide not to renew the lease because you are moving to another premises, you will need to start that process in sufficient time to look at new offices, win the bid to be the tenant, agree the rent and length of the lease with the agent, decide on fit-out works, agree the new lease, plan the office move so as to minimise disruption and then pack up, move and unpack. All this to say, you may need to make plans well in advance. If a lease includes security of tenure, well advised landlords will be making plans 18 months in advance of when the commercial lease is ends. This is because a series of notices will need to be planned carefully and may be 12 months in advance of the end of the lease. It is in everyone’s interest to get organised early when ending a lease.

Understand Your Obligations

When you have decided you are vacating the premises, make sure you understand your obligations under the lease:

  • If your lease is silent on the Landlord and Tenant Act 1954, you likely have a lease protected by security of tenure. That means in most cases you can either insist on a new lease of the same premises or get compensation from the landlord.
  • If you are not protected by the LTA 1954, the lease will insist that you rectify any alterations you have made. This may simply be a necessary legal device to ensure the tenant does not demand compensation from the landlord, in other words, when it comes to the end of the lease, the landlord will not actually make you rip out the air conditioning etc. However, the landlord can insist on it, so you need to ask the landlord about this well in advance – allow enough time before your commercial lease is ending to reach a commercial agreement with the landlord, to sign something to formalise it and enough time to rectify the alternations if the landlord at any time decides you must.
  • If the lease demands that you restore the property to its original state, the landlord may take the view that you are still in possession of the property because e.g. you forgot to remove the data cables you put in the wall.
  • If the lease demands that you hand over the premises with vacant possession, you have to be well prepared: if your workmen are still in the premises after the end of the lease, you will not have given vacant possession, even if the landlord knew all about it. If you are vacating the premises by exercising a break clause, that could make your break notice invalid retrospectively and you will have to pay the rent until the end of the lease or the next break date.
  • On repairs, be sure you know what you have rented. Does your premises include the windows or just the inside of the window frames? Does your premises include only the surface of the floor or does it include the floorboards as well? If so, how can you check that they are all in good repair? If, during the lease, the tenant made no repairs through the lease, after the lease ends, the Tenant may still have to pay for repairing the property up to the required standard. Generally, the only cost effective way of approaching this is to meet the landlord at the premises, agree on what needs to be done and then do it. The tenant will usually need to pay all or part of the cost of having this done professionally. An alternative, is that the landlord inspects the premises many months after you have vacated, decides by itself what needs to be done, hires someone to do it and then sends you an invoice which could be for a large amount.
  • On service charges, you may have a balancing charge to receive or pay after the service charges have been audited after the end of the year – this can be more than a year after you have left the premises.

If you are ending a lease of commercial property contact James Williamson so that he can guide you through the process and make sure you are protected. Click here to email James.

Lease Advice

Lease Advice – Keeping The Legal Aspects Simple

Lease advice is one of the most common requirements for businesses who have got beyond the start-up phase. But if you are wary of lawyers making things complicated, you are not alone. Even in-house lawyers get upset when they hire external lawyers who make things complicated. As someone who has been both a partner in a law firm and in-house at one of the top property companies in Europe, I can assure you that lease advice can be kept simple. However, it is only kept simple when the lawyer deeply understands what is going on. A lease agreement (should) manage many risks relating to the building and the relationship between the landlord and the tenant. It is one of the most unregulated areas of law, so if something goes wrong it is unlikely that the law will impose any “fairness.” What we are actually doing is to make a complex thing simple. This also protects your relationship with the landlord and the managing agents. We do this in a number of ways:

We get involved early with our lease advice

This way we can most easily influence how the legal risks are divided up. If you have agreed detailed terms of the deal without taking legal advice you may find that you need to re-negotiate it and by then people dig in their heels and everything is much more time consuming.

We spend time with you

There are many property risks that we will manage on your behalf. We find simple solutions because we make sure we understand what you are doing, how you want things to be done and what you need to achieve.

I know there are many people who say they understand entrepreneurs but if you haven’t lived it, it is just not true. Some of our consultants also operate their own businesses and have been entrepreneurs.

Avoid Meaningless Arguments

Some people think they are effective but in fact they are just argumentative. In fact, that happens because (i) the lawyers are thinking of their own ego and overlook that their sole aim should actually be to help the client (ii) they don’t understand the actual financial cost of what they are talking about (iii) they don’t really understand the document so they are afraid to make any changes (iv) they never bothered to ask your opinion! We are interested in what you are doing and why. It helps us to understand what you need and what you don’t need. That means we can avoid meaningless arguments and we can solve the issues that do matter and tailor our lease advice without damaging your business relationships.

We understand the entire lifecycle of the lease

When the lease is signed, there are many more steps left: (i) the contracts to fit-out the shop or office (possibly with structural changes to the building), (ii) possibly you need to install cabling in a technical fit-out, (iii) supply and distribution agreements for your stock, (iv) marketing (v) hiring staff (vi) security (vii) managing the exit or expansion of the lease to ensure that you get a clean break and do not overpay. The lease of your property is not just an academic exercise but it affects the entire lifecycle of everything in your business. We understand all this and that’s why we can ensure the lease is not only simple but also thorough and avoids any uncertainty as you go through all these steps.

And most of all…

We are interested to learn about you. We keep learning and stay flexible. We do not operate a rigid system that you have to fit into. We will adapt to whatever you need.

And to give you peace of mind with our lease advice…

Because we want to give you a great service without causing anxiety, we will always offer you a reasonable fixed fee for lease advice so that you can control the costs.

Contact me, James Williamson, for lease advice or any other commercial property law advice here.

Office Lease Lawyers London

The Office Lease - Risks And Opportunities

When negotiating an office lease, the tenant may be dealing with the property industry for the first time. It is then tempting to focus only on the rent and assume everything else is a relatively minor issue. That would be a mistake.

Three Points To Be Aware Of

  1. The office lease does not have to be fair.
  2. Risks in the property industry involve relatively large numbers.
  3. Certain words and phrases in an office lease may appear to have one meaning but actually have a very different meaning in court.

Three examples:

  • If a repairing obligation includes the words “put and keep” then the tenant may find itself upgrading the whole premises despite only having, say, a 3 year office lease. To add insult to injury, the tenant may only realise what it’s got itself into after the lease ends, meaning it would not even be able to use the property in its renovated state.
  • The extant of the “premises” being rented may seem to be a matter of common sense but it may or may not include the windows, doors, non-structural walls, structural walls, pipes and cables and the roof! The extent of the premises simply depends on what the office lease happens to state but it will be up to the tenant to repair and insure the whole of the premises. That may sometimes not be a problem but beware that the building may only look like it is in a good condition: be sure not to have liability for hidden defects, to find out about any incidents in the insurance history of the building and, to confirm that the building is fully insured (i.e. for its full reconstruction value).
  • In a modern office building, a relatively small and brief fire in the kitchen of a small office premises, can easily cause damage that causes £100,000 of costs to the landlord and the other tenants in the building.

Is Your Landlord Solvent?

Many mistakes made by tenants actually come down to a belief that the landlord, as it owns a commercial property, is relatively wealthy. This is frequently not true. Although the landlord may be part of a corporate group which is wealthy, the landlord company itself may have bank financing and internal company loans which exceed the value of the building and thus is simply supported from one year to the next by its parent company. Such arrangements are not uncommon and tenants should therefore take the extra time to think carefully and ensure they remain protected even in the event of the landlord’s insolvency.

An office lease is a very flexible document which manages many risks (each of which may be larger than the annual rent) in a business relationship that will usually continue for many years. An office lease can easily lead to the financial ruin of either the landlord or the tenant but if handled properly, these risks can be managed in a way that allows both parties to safeguard their businesses and grow. How the risks are managed must also reflect the financial, organisational and technical ability of each party to cope with it on a long term basis.

Office Lease Flexibility

An office lease should also reflect the potential for a tenant’s business priorities to change over time. This is true for start-ups as well as more established businesses. Consider:

  • Many businesses adopt strategies which reflect the prevailing attitudes of Investment analysts, who sometimes like focused businesses and sometimes instead prefer businesses with a spread of activities and hence risk. As tenants may buy or sell subsidiaries, open new divisions of their business or themselves become take-over targets, it is important that the office lease remains flexible enough for a tenant to change its business strategy.
  • For start-ups, the future is quite unpredictable, so it would often be helpful to adapt the office lease so that at least the cost of the lease is predictable. For example, larger landlords may agree to having a fixed service charge and rent to be paid monthly in advance instead of the standard 3 months in advance. As a further example of a common problem, will the landlord carry out an (expensive) inspection of the premises months after the tenant has vacated and then invoice it all to the tenant?
  • Does the office lease ensure that at the end of the lease, the tenant can choose to take a new office lease and remain in the premises or would there be a lengthy discussion about the new rent level and open competition from any new potential tenants? For a tenant, that prospect may not only be worrisome from a financial perspective but also the time perspective - the process of carefully selecting new premises and moving into them is very time consuming. A lease can manage this is many ways.
  • If there is further space available in the building, would it be prudent for the tenant to reserve that space for 6 – 12 months?
  • Might the tenant need specialised telecom and data cabling installed in the building? That might be expensive, slow and even forbidden if the office lease in is a listed building or if, as so often happens in London, the landlord also needs consent from one or more superior landlords. Such issues can be addressed in the lease at the outset, to avoid expensive problems in the future.
  • Does the landlord facilitate contact between the tenants? This does not take much effort for a landlord but clearly, is better discussed at the outset if it might be important. A simple gathering of the tenants twice a year could facilitate new business relationships or a strategy to green the building. Those are both items which can be simple and cheap but are quite impossible if the tenants do not talk and that is hard to achieve if the landlord does not facilitate it.
  • Does the landlord plan to provide a service or will the landlord be very difficult even to contact? The office lease can also establish the right communication channels between landlord and tenant and that can make all the difference in any business relationship.

Use An Expert

It is therefore important, especially for tenants who may be dealing with the property industry for the first time, to choose advisers who have a deep experience of the entire property industry and can therefore efficiently solve problems on time and budget and who can provide support for the entire lifecycle of the office lease: the initial heads of terms, the lease itself, fit-outs and refurbishments to the property (by either or both the landlord or the tenant), expanding, insolvency, renewing the lease or preparing the exit (well in advance). Contact Neil Williamson or call us on 0203 637 6374 if you would like to enquire about any aspect of an office lease.

EM Law Commercial Lease Lawyers London

Commercial Lease - A Quick Guide For Tenants

However, before signing on the dotted line, it is very important to understand exactly what you are getting into. To avoid potential pitfalls, here are some issues that tenants should consider when taking on a commercial lease for the first time.

Identify the parties and the premises

Care must be taken to correctly identify the parties to a commercial lease as well as the premises in question. The lease should be taken in the name of the business rather than in the name of a person as leases usually contain onerous obligations and can expose the lessor to significant liability. You should also check that the precise square footage of the premises is clearly defined in the lease and matches the premises that you were expecting.

Think about the length of your lease

Commercial leases are generally for a fixed term, typically three, five, ten or 15 years depending on the business sector. Although it may sound obvious, it is essential that the length of your lease fits in with your commercial objectives. Committing to a long lease when you have a long-term plan to relocate may not be in your best interests. Ideally, as a tenant, you also want to be protected by the Landlord and Tenant Act (1954). The Landlord and Tenant Act (1954) allows commercial tenants to remain in occupation of the premises even when the contractual term has come to an end, and to apply to the court for the grant of a new lease.

Ask for a break clause

If your business starts to struggle and you need to end your lease early, you won’t be able to do so unless your commercial lease includes a break clause. A break clause essentially enables you (and possibly the landlord) to end the lease early. The right to break may arise on one or more specified dates or be exercisable any time during the term on a rolling basis. Before signing your lease, you should check the conditions of any break clause. It is important that both parties are aware of the other’s right to break the lease and the required notice that may need to be served.

Be aware of hidden costs

When it comes to commercial property, there are certain costs that are unavoidable. Having said that, there are also hidden costs that you should be aware of. A repairing obligation can, for example, prove a real burden. To avoid this burden, you should ensure that the definition of ‘Premises’ does not include areas that you have not anticipated you need to keep in repair. You don’t want to find yourself responsible for major works or repairs to your premises that are disproportionate to the length of your commercial lease.

You should also be wary of any additional service charges. Additional service charges often apply to premises where there are multiple occupants and the landlord provides a range of services for those occupants, such as cleaning, heating and general maintenance. Before signing a commercial lease, you should ask your landlord to provide an exact breakdown of costs so that you can make an informed decision about whether or not the lease is financially viable for your business.

Don’t forget about assignment and subletting

If it's not easy to terminate your commercial lease, being able to assign or sublet it may be a huge help to you. Assignment involves transferring the remainder of your lease to another party whereas subletting creates a new lease where you become landlord to a sub-tenant. However, whether you can assign or sublet your commercial premises will depend on the terms of your lease. If you want to keep your options open, you should try and get your landlord to agree appropriate assignment and subletting terms before you sign the lease.

Commercial lease terms can be difficult to understand, and once signed can be very tricky to get out of. Before signing a commercial lease you should seek advice from one of our commercial lease lawyers. If you have any questions regarding commercial leases please contact James Williamson.