Letting out space in your commercial property

Renting out space in your commercial property to a third party occupier can be a valuable source of additional income for you. It can also allow you to share the running costs of your property and offer additional services to your customers.

However, it is important to have a written record of the occupation to allow the landlord to control the way the property is used, the repair obligations of the parties and to agree the date on which the property is to be returned to the landlord. This can avoid potential disputes or issues which can be costly both in terms of money and relationships. In the absence of a written agreement, a particular form of occupation agreement will be implied which may not have been the intention of either party and can have undesired consequences. For example, it can be extremely difficult to get an undocumented tenant occupying for the purposes of its business to vacate a property if a periodic tenancy is implied and the tenant obtains 'security of tenure' under the Landlord and Tenant Act 1954.

Occupations can be documented in one of the following ways:-

• A lease - this is an interest in land and it grants an exclusive right for the tenant to occupy the premises for a certain period of time at a rent. Provided that it is not prohibited in the lease, a tenant can transfer their interest or create new rights e.g. subtenancies. A lease is commonly used to document occupations of longer than 6 months;

• A licence - this is a personal right for the occupier to use the premises. It is not an exclusive right so other occupiers can also use the premises. It cannot be transferred and will come to an end if either party to the licence changes. It is commonly used for short term occupations of less than 6 months;
• A tenancy at will - this is simple tenancy arrangement. It can be terminated by either party at will. It is personal between the parties and cannot be transferred if either party changes. It is usually used for straightforward short term occupations, for a few days/weeks.

In addition, an agreement for lease may be required if the parties are incurring costs before the lease is completed (e.g. the landlord is carrying out works) and the landlord wants a prior commitment from the tenant that it will complete the lease once the landlord has completed the works.

It is also important to consider the planning implications of letting part of your property as planning consent may be required e.g. if there is a change of use. In addition, if you occupy the property under a lease, you will need to check that the proposed use by the occupier is permitted under the terms of your lease.

If you are a landlord or a tenant and need any more information about property occupiers or other matters, please contact Kathryn Matthews in our Commercial Property department on 01904 688529 to discuss how we can help.

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.