Many landlords seek to prevent tenants from altering the property by including provisions in the lease which prohibit alterations without their consent. However, landlords may not have as much protection as they might think.
Understanding the language used in the commercial property world is important if you want to avoid costly mistakes and protect your interests. Below is a glossary of some of the most commonly used terms.
Assignment is when a tenant is permitted under the terms of the lease to pass the tenancy on to a new tenant. The lease will state whether or not this is allowed. A condition of assignment may be that the original tenant must sign an authorised guarantee agreement (see below).
Authorised Guarantee Agreements
If a tenant assigns the benefit of a lease to a new tenant, the landlord may require the outgoing tenant to sign a guarantee in respect of the new tenant. This generally means that the original tenant will be responsible for unpaid rent, repairs and breaches of covenants if the new tenant fails to meet their responsibilities. The landlord may also be able to insist that the original tenant takes back the lease.
A break clause included in a lease allows landlord or tenant, or both, the opportunity to end the lease early, before the full rental term. It is important to comply exactly with the terms of any such clause if you wish to enforce it, for example, any pre-conditions and notice requirements.
Also referred to as uplift or overage, a clawback provision in a sale agreement allows the seller to claim a payment from the buyer in the future, should the value of the land increase.
This is included where there is the potential to develop land or obtain planning permission, making the land substantially more valuable than at the date of sale. A clawback provision would require the buyer to account to the seller for a certain proportion of the increase in value, to be calculated by way of professional valuations.
Covenants contained in property agreements are rules for the occupier of the property. A restrictive covenant will prevent something being done, for example, disallowing parking of a vehicle or putting up a new building, while a positive covenant requires an action to be taken or payment made.
A schedule of dilapidations is a list of works that the landlord requires to be done to keep the property in good repair and condition. It is usually given to the tenant at the end of the lease period and the tenant needs to have the work carried out or alternatively pay for the landlord to do so. A landlord may also serve a schedule of dilapidations during the lease period.
An easement is the right of someone to use and/or enter property or land. It will be contained in the title and/or lease. Common examples include rights of way and the right to have services such as electricity supplies or communications cables crossing property.
If a tenant breaches the terms of their lease, then the landlord may be able to forfeit the lease, end the tenancy and require the tenant to leave. This usually occurs if the tenant fails to pay the rent or seriously breaches covenants included in the lease.
If this happens, the tenant has the right to ask the court for relief from forfeiture. If this is granted, the tenant may be put back in the position they would have been in, had there not been forfeiture.
Full repairing and insuring lease
This type of lease requires the tenant to pay for all repairs, maintenance and insurance of the property. Tenants should beware that they will usually be required to hand the property back in good repair and condition, even if it was in some disrepair when they took it on.
The solution to this from the tenant’s point of view is to have a schedule of condition drawn up when the lease is signed and to agree to hand the property back in the same state as it was at the time the lease was signed.
Heads of terms
This is a non-binding document including the main issues and details that will be put into the final agreement between parties who are anticipating entering into a transaction, for example, the sale and purchase of commercial property.
Security of tenure
Security of tenure is a legal right allowing a business tenant the right to apply for a new tenancy on similar terms to their existing tenancy at the end of the lease term. Landlords will often include clauses in a commercial property lease excluding a tenant’s right to security of tenure however, so it is something to look out for when signing a new lease.
If you are dealing with a commercial property matter and you would like to talk to one of our commercial property experts, feel free to ring us on 01753 876800 or email us at firstname.lastname@example.org.