What Are the Contents of a Commercial Lease Agreement?
What is a commercial lease agreement?
A commercial lease agreement is a contract or agreement between the landlord and tenant for the lease of commercial premises such as a shop, office or restaurant.
The lease grants the tenant the period of time they have to rent or to have exclusive possession of the property, in agreement with the landlord and subject to rent payments and clauses.
The Landlord and Tenant Act 1954 protects the commercial lease agreement unless stated otherwise.
The contents of the commercial lease agreement
A commercial lease agreement typically includes:
- The rent amount
- Covenants applicable to the landlord and tenant
- Rights reserved
- Rights granted
- Restriction on planning
A commercial lease agreement may also include specific information regarding:
Service charge information will be included in the commercial lease agreement if you are leasing part of a commercial premises. This is the cost that it takes to maintain the common areas of the premises which you will be responsible for organising.
The contents of the commercial lease agreement will answer questions such as:
- Can I sell the lease or sublet the commercial premises?
The majority of commercial lease agreements will allow this if you can guarantee the performance of the new tenant and that they will pay the rent. This would be your responsibility, so if the rent wasn’t paid, the tenant left or declared bankruptcy then you would have to take the lease back.
- Can I alter the commercial premises?
You can usually grant consent by a licence for alterations tenants wish to undertake, however some alterations will still need planning permission, for example shop fronts and external signs.
There are some exceptions when you don’t need to grant your tenants permission, but this will be worded in the contents of the commercial lease agreement.
- Who is responsible for repairs in a commercial premises?
Generally, the terms of a commercial lease agreement are known as full repairing and insuring leases, so the tenants are responsible for all repairs. If tenants share the building with others, you are usually responsible for repairs as the landlord.
- Can the rent increase during the term of the commercial lease agreement?
This depends on the terms and conditions and the length of the lease stated in the contents of the commercial lease agreement. Leases of more than five years usually have rent review provisions.
- When will I have to pay the rent for my commercial premises?
The terms and conditions on the commercial lease agreement will state what day the rent is due each quarter, on Old English Quarter days:
- March 25th
- June 24th
- September 29th
- December 25th
Occasionally, a commercial lease will require a monthly rental payment, but this is not common.
The tenant is not responsible for all covenants in the contents of the commercial lease agreement on assignment, unless an Authorised Guarantee agreement (AGA) was signed.
An AGA is an agreement where you agree to continue responsibility for the new tenant and often forbid or limit assignment in the first place. Some clauses require the need for consent from the landlord.
An insurance clause in the contents of a commercial property lease agreement ensures that you insure the property in line the lease. For example if the commercial premises is damaged by an insured risk, you may choose to offer a rent reduction or give your tenant the opportunity to terminate the commercial lease agreement if they wish.
Break clauses are included in the commercial lease agreement to state how either you or a tenant can terminate the lease. If this set, legal conditions are not followed, the termination of lease will not be legal and therefore not take effect. For example, if a tenant fails to pay all the rent owed, the termination of lease will not happen until all money owed is paid to the you.