Leases - Tips for Landlords and Tenants
1. TIPS FOR LANDLORDS
Landlord Tip 1: The Landlord and Tenant Act
This Act gives a business tenant the right to remain in
occupation beyond the end of the fixed term. A landlord will have
to offer the tenant a renewal lease unless they can demonstrate a
statutory ground applies. This may not be
What can a landlord do?
The Act won't affect a fixed term tenancy not exceeding 6
months. Therefore you could allow a tenant to use your empty shop
premises for a couple of months (e.g. to trade over Christmas)
without worrying about this Act as long as the lease contained no
provisions to renew or extend the term beyond 6 months. However, if
there was the remotest possibility that the tenant could be staying
for longer, we would recommend you take advice to ensure that the
lease is "contracted out" of the provisions of this
It may be tempting to offer the tenant a short term licence
to occupy as this Act does not apply to licences. However, a
landlord needs to tread carefully. Firstly, the Courts will look at
the document very carefully to decide whether or not it has the
characteristics of a licence. If the occupier has an exclusive
right to occupy the premises (e.g. there is no limitation on their
hours) and they pay a rent, a Court may well decide it is a lease
not a licence. If a Court decides it is a lease, then the occupier
potentially has the protection of this Act.
Tip: If there is any chance your tenant will be around for 6
months or more grant them a "contracted out" lease. This means that
the tenant will have given up their rights under the Act and you
don't need to worry about whether your licence is actually a lease.
"Contracting Out" is simpler than it used to be - you no longer
have to make a Court application. However, we would recommend you
take professional advice to ensure you comply with the procedure
Landlord Tip 2: How much do you know about your
It sounds obvious but there is no point in granting a lease
to a tenant who is likely to breach it.
Tip: Ask for bank references and carry out credit checks on
the tenant before committing to the lease. A professional valuer
will be able to suggest practical ways of protecting your interest
- e.g. by asking for guarantors or a rent
Landlord Tip 3: Will you be able to break your
At Tip 1 we explained how a landlord could find that a
tenant's lease hadn't ended when he expected. A landlord also needs
to be careful if they want a break right (i.e. a right to serve
notice to end the lease early).
Tip: Unless the Lease is "contracted out" of The Landlord
and Tenant Act 1954, then the landlord may not be able to exercise
their right to break.
2. TIPS FOR TENANTS
Tenant Tip 1: What are your repairing
A lease obliges the tenant to "keep the Premises in good and
substantial repair and condition". This sounds reasonable but needs
to be treated with caution. It is known as a full repairing
obligation - if the premises aren't already in this state of
repair, the tenant will be obligated to repair them to this
standard. This could be disproportionately expensive, particularly
where the tenant is responsible for the structure as well as
internal repairs or where the tenant is only taking a short term
lease (e.g. a couple of years).
A tenant also needs to be wary of "excluded risks" being
risks which the landlord either does not or cannot insure the
premises against (e.g. flooding if the premises are next to a
river). The starting point in a lease is usually that the landlord
will repair any damage caused by a risk they've insured against
but, otherwise, all repairs are the tenant's responsibility. From a
tenant's point of view, this could be very unfair - e.g. the tenant
has a 5 year Lease; the premises flood incurring significant damage
and the landlord's insurance doesn't cover flooding. In these
circumstances should the tenant really be entirely responsible for
Tip: Define the extent of the "premises" (i.e. what the
tenant is responsible for repairing) carefully. If the premises are
new, ask whether there are any warranties available or whether your
repairing obligation can be amended so the tenant isn't responsible
for structural or inherent defects. If the premises are older,
consider having a photographic schedule of condition setting out
the standard of repair or an exception for "fair wear and tear".
Take professional advice to agree a compromise on any repairs
necessitated by "excluded risks".
Tenant Tip 2: Can you actually get out of your lease
A tenant will often negotiate a right to break the lease
early on a specified date providing they give a minimum amount of
notice. Tenants need to be wary of any pre-conditions attached to
the right to break - if they don't comply, they'll lose the right
Tip: Take professional advice on serving a break notice.
Leases typically have the provisions relating to serving notices
separate from the break clause. If a tenant serves the notice on
the wrong party or misses a deadline they could lose the
Be wary of a pre-condition to a break right to the effect
that the tenant does not owe any "rents" due under the lease at the
break date. "Rents" could include service charge/insurance rent -
what if these sums haven't been ascertained as at the break date?
Likewise, it's easier than you might think to not comply with a
pre-condition to give vacant possession. Never accept a
pre-condition to the effect that the tenant is not in breach of
their lease - a tenant could lose a right to break over something
relatively minor (e.g. having used the wrong number of coats of
paint when they last re-decorated).
Make sure the lease states that the landlord is to refund
any sums which the tenant has paid in advance for the period after
the break date.
Posted on: 10/12/2010
This article is for general guidance only. It provides useful information in a concise form. Action should not be taken without obtaining specific legal advice.
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