Commercial Property: how secure is your commercial lease?

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Laura was running a successful stationery business from rented warehouse space. She knew her landlord eventually wanted to sell the building, but assumed there was plenty of time – until the day he told her she had a month to move out.

Panic stations!

Deep breathing.

Panic again!

Luckily, she found alternative premises where her business could continue to operate.

Next time, she will ensure she gets a commercial property lease that includes Security of Tenure.

Commercial tenants usually benefit from Security of Tenure under Section 24 of the Landlord and Tenant Act 1954 (LTA). This gives existing business tenants the right to request a new tenancy when the original lease expires, unless the landlord has already sent them a Section 25 LTA notice to terminate the tenancy.

Commercial landlords can follow a strict procedure to contract out of the LTA if they wish.

To apply for security of tenure, tenants must write to the landlord between 6 and 12 months before the new tenancy is due to commence.

Thinking of leasing your freehold property to a business?

It may take lengthy negotiations before you agree the lease with the tenant and become a commercial landlord.

The situation is more complex than being a residential landlord – the legal obligations are not as strict, but there are many issues to be aware of. The details will depend on the property, and how well you and your tenant bargain to agree the terms of the lease.

Usually, the lease will run for 5-15 years, with regular rent reviews, and restrictions on sub-letting and assignment.

The original lease is called the ‘head lease’. If this lease allows the tenant to lease the property to someone else, the second lease is known as the ‘sub-lease’.

If the freeholder, holder of the head lease, or holder of the sub-lease, are allowed to sell their interest, this is called ‘assignment’.

What’s in it for the tenant?

Renting commercial property allows the tenant more flexibility than buying the freehold, as it costs less while making it easier for the business to expand or move if necessary. However, commercial tenants do not have as much protection as residential tenants.

Whether you’re a commercial landlord or a commercial tenant, it’s best to get advice from a solicitor, because if procedures are not followed correctly, the lease (and your rights under it) may be void.

For more information, please call us on 020 7113 4003 or reply to this email and we will be happy to help. The initial telephone consultation is free.

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