Part 3 – Term
Having a defined term is essential. This is commonly a fixed period, such as 3 or 5 years but can also be on a periodic basis, e.g. month by month. The length of the term has to be agreed between the landlord and tenant but both will have different ideas. A landlord will want stability so will push for a long lease term whereas a tenant generally has conflicting thoughts. A long term is quite a commitment to enter but a short term could mean that they are forced to leave when things are going well.
A common solution is to agree a long term but include break clauses/options so that the tenant can end the lease earlier if they need to do so. Break clauses can be flexible in that they can be for the benefit of either landlord or tenant; they can refer to a fixed date, to a recurring anniversary, or just to an agreed period of notice; they can even be triggered by a particular set of circumstances arising. The operation of break clauses is however far from flexible: if a tenant fails to comply with the strict requirements of the clause, the break will not be successful and they will remain bound by the terms of the lease.
One further issue to highlight is the effect of The Landlord and Tenant Act 1954. This legislation states that, as default position, if a tenant occupies premises for the purpose of their business then, at the expiry of the formal term of their lease, they are entitled to a renewal lease or in fact to just continue in occupation under the terms of their existing lease. The Act only gives landlords limited grounds to object to this, such as that the tenant has been a bad tenant, or that the landlord intends to redevelop the property. It is possible to exclude the operation of the Act so commercial leases are often referred to as being either ‘inside’ or ‘outside’ the Act and the position should be clarified at an early stage in the negotiations.
In this series of articles, we are aiming to give you a brief overview of the principal areas covered by a commercial lease. These articles are for guidance only and do not represent legal advice. If you need advice or assistance on leases or any other property concern, please do not hesitate to contact Andrew Rannie, Head of the Property Department for a free initial consultation.