What are the key terms that need to be covered in a commercial lease? Part 2

Agreeing the terms of a lease can seem like a formality but it is important to take the time to make sure that the lease reflects what both landlord and tenant want to achieve. In the second of three articles on this subject, Yildiz Betez, commercial property solicitor with Thackray Williams explains some of the key terms that need to be included to deal with what happens during the lifetime of the lease.

[Click here to read Part 1 if you missed it].

Repair and insurance

Both landlord and tenant will want the property to be well maintained and both will have some obligation to repair. The extent of the obligation will vary depending on the type of property and exactly what is let to the tenant. A commercial lease of a floor or unit in a larger building or development will usually exclude structural parts and the landlord will be responsible for maintaining these, as well as any shared areas and access routes. The tenant will usually be required to keep the property included in the lease in good and substantial repair and condition, except where damage is covered by insurance. If the property is in poor condition when the lease is granted, the parties may limit the tenant’s obligation to keeping it in no worse state than at the date of the lease. An agreed schedule of condition, usually accompanied by photographs, will be attached to the lease as evidence.

The landlord will be required to insure the property, recovering the cost of the premium from the tenant. As long as the tenant does nothing to invalidate the insurance, the landlord will be responsible for repairing damage covered by insured risks, using the insurance proceeds. The lease will usually give the tenant a period free of rent if damage is so severe that the property cannot be used. Either party may have a right to end the lease if the property has not been fully repaired within an agreed time.

Landlord’s right of access

The landlord will want the right to enter the property in a range of circumstances, including to check whether the tenant is complying with the lease and to remedy breaches if the tenant fails to do so. The tenant will want to agree limits, such as reasonable notice and the right to accompany the landlord during any inspection.

Alterations and handing back the property

During the life of the lease the tenant may want to alter the property, perhaps re-configuring the internal layout or adding new heating or air conditioning. The landlord will want to prevent any damage to other parts of the building or development and make sure the property is in a lettable condition at the end of the lease. The usual compromise is for the tenant to be allowed to make non-structural alterations to the inside of the property, as long as the landlord consents in advance. The landlord will usually agree to be reasonable in considering requests for consent. Some minor changes may be allowed without the need for prior agreement. Structural alterations are usually prohibited.

The lease will set out the expected state of the property at the end of the lease, in the ‘yielding up’ clause. The tenant will usually have to remove all alterations and hand back the premises empty and in a good state of repair. This is an area ripe for dispute at the end of the term and both parties may need legal advice.

For more information on commercial leases, or any other commercial property matter, please contact Yildiz