The key trigger when a review of a lease over commercial premises can save you money is leading up to a break clause, a rent review, when the contract term is due to expire or if service charges have risen in recent years. We offer quick and practical advice for commercial tenants drawing on our experience which will give you the overview on market trends you need.
There can be a variety of issues to consider when reviewing the lease. We have set out below some of the areas where we can add value. If you have any queries please do get in touch.
1. Timing of a lease review
Break and rent review clauses often have strict time tables set out in the terms of the lease. For instance it was common before 2008 for landlords to insist that a break be subject to the tenant not being in breach of any of its covenants both at the date the notice was served and at the break date itself. [1] Such terms are very difficult to comply with but an early review puts a tenant in a better position to address potential breaches and negotiate an exit strategy. A landlord faced with a tenant who has prepared and is ready to dispute any contentions as to the validity of their break notice is more likely to concede and reach an agreement rather than engage in expensive litigation.
Similarly rent reviews and service charges often set time limits for the tenant to challenge or request further information with time usually being of the essence. In commercial leases such time limits are not formalities and if the tenant does not serve notices on the right person, in the manner required by the lease and at the correct time they stand to lose their entitlement to contest such charges.
Where the lease has statutory protection equally strict timetables apply, for instance where a section 25 notice or section 26 request [2] has been served the tenant will lose the right to a new tenancy if they do not issue proceedings or agree an extension of time in writing before the given date.
2. Consequences of not reviewing
For the tenant caught out by the terms of the lease the consequences can be equally dire. Failure to exercise a break properly can result in the tenant being bound to pay rent on a property they no longer want for a further five years. It is also not unknown for tenant’s to be paying for sums they are not liable to pay, for instance the landlord’s management charges where there is no provision in the lease for them to be recovered from the tenant.
3. Assignment and sub-letting
As an tenant you will not usually need to review your lease before apply for consent to assign or sub-let but it can be worth having a strategy in place if it anticipated the landlord will object or delay giving consent. Similarly if there are issues and the landlord does not want to give consent and is anticipating a request it would pay to prepare and review the potential grounds of opposition.
4. Avoiding litigation.
It is not uncommon when a dispute arises for the commercial landlord and tenant to become embroiled on satellite issues, such as the timing and validity of notices, rather than the fundamental matters between them. A timely review before any action is taken of each parties rights can help identify what is at issue and hence enable the commercial tenant to plan ahead and avoid unnecessary litigation and costs. Even where there is an issue the parties are more likely to reach an agreement early when confrontation over minor issues has been avoided.
[1] With lessening demand for commercial premises tenant’s are generally in a stronger position to negotiate a break clause without pre-conditions or conditional upon the payment of basic rent only.
[2] For tenancies that enjoy the protection of the Landlord and Tenant Act 1954.