Hamilton Pratt

Commercial Leases

Modern factories, warehouses and offices are usually built or refurbished by commercial property developers and the freehold of the property owned by institutional investors, eg property investment companies, pension funds or insurance companies.  For many years, commercial leases have typically been for periods of 15 to 25 years when first granted.  In recent years, it has become easier for tenants to negotiate shorter terms.  Standard commercial leases usually permit the tenant to sub-let or assign (ie give or sell) the property to another. If you do not want to take over a long lease, it is often possible to acquire the unexpired term of a lease and take over all the continuing obligations of the outgoing tenant.

Under a standard commercial lease:-

  • the initial rent will be fixed at the start of the lease and reviewed every few years and adjusted to reflect the current market rent for a property of that type. The rent will probably be reviewed (typically upwards only) every 5 years until the term expires.  The lease will normally contain provision to allow for arbitration if the tenant and the landlord cannot agree on a new rent;
  • the landlord will insure the property and charge the tenant the cost of doing so;
  • the tenant will be responsible for all expenditure on the property, including repairs, and there will be a specific obligation to maintain the property to a specific standard;
  • there will be controls on alterations to the property, usually requiring the landlord’s consent;
  • at the end of the lease the tenant will have to carry out any works necessary to put the property back into the condition it was in when the lease was first granted; and
  • if the lease is for part of a property (eg offices within an office block or a shop within a shopping centre), the tenant will normally have to pay the landlord a proportion of the general expenses of the whole property and the maintenance of common areas (commonly known as “service charges”).