Top tips for commercial landlords
We've separately written about some of the things tenants should consider when entering into a new lease. It is equally important that a landlord takes care when negotiating and preparing a new lease. Here are our top 10 tips for a landlord who is entering into a new lease agreement.
1. Seek advice early
We suggest that you seek legal advice as early as possible. Once an agreement to lease is signed it is usually too late to try and negotiate new terms. A lease document records what you and the tenant have each promised to do throughout the lease's lifetime, so it is important that the lease includes everything you need. Please don't hesitate to contact one of Cavell Leitch's lease specialists for advice as early as possible.
2. Ask for a guarantee
We suggest that you carefully vet your prospective tenants to ensure that they will be able to pay their way under the lease. You should ask questions about the tenant's business plan and their assets and liabilities.
We also suggest that you obtain a personal guarantee from the tenant company's directors or shareholders. As an alternative to a personal guarantee, you can ask the tenant to provide a bank guarantee or ask the tenant to pay a security bond which is held in escrow during the lease's term. Cavell Leitch can help you to structure the lease so that it offers you the best possible security.
3. Take action quickly if things go wrong
We suggest that you act quickly if your tenant misses a payment or otherwise breaches the lease. Our separate article sets out your rights.
4. Terms and renewals
You should carefully consider the length of the lease terms which you are willing to grant. It might seem like a good idea to have your tenants locked into a long lease, but what if your circumstances change and you want to redevelop the building? As your lawyers we can include a clause which allows you to terminate the lease early in this circumstance.
5. Rent reviews
You will need to consider when and how you would like to review the rental. Please refer to our separate article which sets out the pros and cons of the various rent review options.
6. Fit-out of the premises
You will want to have a chance to approve the tenant's fitout plans. The lease should also state that the tenant will be responsible for obtaining any required consents, will pay for any associated compliance costs, and will organise adequate contractor's insurance.
You should consider who will pay for the fit out. You might agree to pay for the works, your tenant is responsible, or you might agree that the tenant will pay you back the costs of works. Whatever the case may be, we can help you draft the lease accordingly.
7. Be clear on what 'make good' is required
We suggest that you include a clause in your lease which requires your tenant to reinstate the premises at their cost at the end of their lease i.e. if your tenant creates a doorway between two rooms, then you should retain an ability to have them reinstate the affected wall before they move out.
We strongly recommend that a 'premises condition report' is attached to the lease before the new tenant moves in. This report should thoroughly record the premises' condition when the lease began. This will hopefully prevent an argument as to what condition the premises must be left in.
8. Agree on a business use
We suggest that the tenant's proposed business use should be recorded in the lease agreement as specifically as possible. This will allow you to ensure that the tenant doesn't switch to operating a business which conflicts with the businesses of your other tenants or is otherwise undesirable.
9. Retain approval of the tenant's right to transfer the lease
Your lease should state that your tenant can only sublet or assign the lease with your express consent. This will let you continue to control the tenancy mix of your property and allow you to check that the new tenant has sufficient financial resources to meet their obligations under the lease.
10. Make sure the lease terms are clearly documented in writing
It is essential that the lease's terms are recorded in a written agreement and signed by both parties before the tenant is allowed to access the premises. We also suggest that any subsequent renewals, rent reviews or variations of the lease are also recorded in a written deed. Having these written records will also be useful if you wish to sell the building or use the leased premises as security for a bank loan.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
