Business owners and company directors might think that knowing what they want out of a lease is a basic trading requirement, but it is surprising how easily things can go wrong, Ashley Gurr, commercial property partner at Redditch law firm Kerwoods, has warned.
All too often landlords and tenants hit problems.
He said: “Tenant clients often do not understand when agreeing deals with agents and landlords the difference between a lease granted within the Landlord & Tenant Act 1954 (with security of tenure) and one “contracted out” of the 1954 Act (without security of tenure).
“It is important that would-be commercial tenants appreciate this key difference when negotiating deals as it is often too late when it has reached the solicitor’s desk.
“It is particularly pertinent where the tenant is committing to a large fit-out spend on a short lease. It can often come as a surprise when tenant clients hear that landlords can evict them on a whim at the end of the contractual term (on a contracted-out lease) regardless of the money they may have spent on the property or the customer goodwill they may have built up.
“Security of tenure provides the tenant with the automatic right to remain in possession of leasehold business premises after the lease term expires.
“The tenant can only be forced out where specific circumstances laid down in the Act are met – these include if they have failed to comply with repair and maintenance obligations, have been persistently late with rent or the landlord wants to reclaim the premises because he or she intends to occupy them themselves.
“If security of tenure is excluded from the lease at the outset the tenant has no right to remain in the property.”
Mr Gurr said the attraction of taking this latter route was that rents tend to be lower because leases are seen as less attractive.
“You are in effect trading security for lower rents?” he noted
“And it is no use complaining afterwards when you find yourself out on the street if you were well aware at the outset that might be the case.
“As they say – you pays your money and you takes your choice.”
But, he cautioned, there was a second major headache in the landlord/tenant relationship – dilapidations revolving around repair and redecoration.
He went on: “Students in particular know all about this – the usual excuse when the landlord refuses to return your deposit.
“The point when young people realise there is a consequence for all those wild parties, with red wine spilt on the settee and cigarette burns in the carpet.
“But companies and shop keepers are equally affected, albeit not quite in the same way.
“Tenants should always consider commissioning a Schedule of Condition to record the state of condition of the premises at the outset of the lease rather than run the risk of being slapped with a hefty dilapidations liability at the end of the term.
“Back it up with photographs. It might seem a pain when all you want to do is get your business up and running, but it is vital. Otherwise, later you will lack the evidence with which to contest the landlord’s big bill.”
Mr Gurr added: “Mind you, a common misconception is that landlords can profit from a dilapidations claim. In fact agreement of a financial settlement must only relate to actual loss incurred as a result of the tenant’s failure to comply with their lease. Landlords cannot expect a building to be returned as new.
“So beware, there are many pitfalls which can catch out the unwary. More reason to ensure that you have quality advisers supporting your entrepreneurship.”