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Commercial Leases

Commercial leases can be complex documents. It is important for clients to understand exactly what they are signing because commercial leases can be preserving a valuable asset or an expensive liability. EM Law are experts in drafting, negotiating and advising clients on commercial leases. Our lead commercial property lawyer is Razina Akhtar who has extensive experience in advising clients on a wide range of commercial property matters.

Commercial leases – their nature

A lease is the grant of a right to the exclusive possession of land for a determinable term, which is less than that held by the grantor. It is both a contractual relationship and an estate in land. This means that:

  • The elements of a contract must be present.
  • The lease must be capable of existing independently of the contract, so that it will continue after either an assignment by the tenant of the term or an assignment by the landlord of the reversion.

A person has exclusive possession if it can exercise the rights of the landowner and exclude both the landlord and third parties from the land (except to the extent that the landlord has reserved rights of entry, for example to carry out works).

Possession is not the same as occupation: a tenant may have possession by virtue of being able to receive the rents and profits of the land (reflecting the right of ownership) but the person in occupation could be the undertenant to whom the tenant has granted an underlease.

Commercial leases are typically fixed term and either a business tenancy within the Landlord and Tenant Act 1954 or contracted out.

Commercial leases: Formalities

The general rule is that commercial leases must be signed as deeds although there are some exceptions to this (for example, short fixed term commercial leases (up to three years) do not need to be made by deed.

To be a deed, the document must comply with the following requirements:

  • It must be in writing.
  • It must make clear on its face that it is intended to be a deed.
  • It must be executed in a manner appropriate to the particular legal entity.
  • It must be delivered.

Commercial leases: Outline of a straightforward transaction

In conveyancing terms, the grant of a lease is the acquisition of an interest in land by the tenant. In a simple transaction:

  • Preliminary documents, such as heads of terms, will be prepared.
  • The draft lease and any ancillary documents to be entered into by the landlord and tenant are produced by the landlord’s lawyers. The exceptions are superior landlords’ and mortgagees’ consents. If needed, these will usually be drafted by the lawyers acting for the superior landlord/mortgagee.
  • The landlord’s lawyers or surveyors apply for any superior landlords’ or mortgagees’ consents that are needed. An undertaking for costs is usually given at this stage.
  • The tenant’s lawyers investigate title to the property and carry out relevant searches and enquiries. The tenant and its surveyors arrange any inspections and surveys.
  • The terms of the lease and the other documents are negotiated and settled.
  • There may be an agreement for lease to be exchanged.
  • Pre-completion searches are carried out by the tenant’s lawyers, including a Land Registry priority search where relevant.
  • Engrossments of the documents are circulated for execution, having been prepared by the party who produced the draft.
  • Completion of the grant takes place. Superior landlords’ and mortgagees’ consents need to be obtained before completion of the lease. Other ancillary documents, such as rent deposits and licences for fitting-out works, will usually be completed at the same time as the lease.
  • Post-completion matters are dealt with:
  • submission of a Land Transaction Return and payment of SDLT, which is the tenant’s responsibility;
  • registration at the Land Registry, which is the tenant’s responsibility; and
  • notification of superior landlords and mortgagees, which is the landlord’s responsibility.

Commercial Leases: Investigation

Commercial leases need to be investigated (if you are a tenant) so that you know that the landlord is entitled to grant you the lease and so that you understand what liabilities you are taking on.

Tenants of commercial leases should therefore carry out a full investigation of the property and its “title” and then negotiate in light of the findings.

Commercial Leases: Post-Completion

Stamp duty land tax / land transactional tax may need to be paid. registration may also be necessary at the Land Registry. Specific notices may need to be given (for example if the lease is an underlease the superior landlord should be notified).

For any questions you may have concerning commercial leases contact Razina Akhtar.

Commercial Leases - EM Law - Razina Akhtar

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