Leases – striving for reasonableness between the Landlord and Tenant

PUBLISHED 12.10.16

When negotiating heads of terms of agreement between a landlord and tenant and before a lease is prepared, it is important to consider the various aspects of the lease and to adjust the heads of terms of agreement accordingly, depending on the length of the term, the rent and the current state and condition of the property.

It is in both the Landlord and the Tenant’s interest to have a balanced agreement and a lease drafted on reasonable terms. A lease drafted on even handed terms between the landlord and tenant means that it is likely the lease will be agreed more quickly with less negotiation involved, meaning less legal expense and sooner occupation.  The landlord will have rent sooner and the tenant will be able to commence fit out and get on with business sooner.

To assist your legal advisers, ensure heads of terms of agreement are comprehensive. The obvious terms are the period of the lease, rent free and annual rent, but don’t forget to consider whether the lease should be within or outside the security of tenure of the Landlord and Tenant Act 1954.

Repairing obligations on the tenant should also be considered. For example, a well advised tenant is unlikely to accept full repairing and insuring terms on a short 3 year lease at market rent.  However, on the other hand, if the Landlord is offering a rent free period or lower than market rent, then it could well be that the tenant is expected to put the property in good repair and condition.  Considering these issues and coming to agreement in respect of them will lead to less time spent agreeing the terms of the actual lease document.

Consideration should also be given as to whether on such a short term lease a 40 page full commercial lease precedent is used or the tried and tested law society lease (or similar) with necessary modifications to ensure it is fit for your circumstances. The former will require lengthy drafting by the landlord and reviewing by the tenant and the latter is drafted on even handed terms and takes less time to prepare and review, but is not appropriate for all scenarios.

There is no right or wrong answer and each case should be based on its own merits. With many years experience in commercial property leasing for both tenants and landlords, we at Dunn & Baker can discuss with you and assist in preparing your lease (for a landlord) or reviewing and negotiating it on your behalf (for a tenant).  Get in touch with one of our commercial property team.