Choosing your new office space

Commercial leases are granted for a fixed period of time, anything from 6 months to 25 years (although it is now rare to see new commercial leases of more than 15 years). Rights can be agreed for tenants, landlords or both to terminate a lease after a stated period (usually on 3 or 5 year cycles). These are known as “break rights” and usually require the service of prior written notice and are subject to the strict satisfaction of specified pre-conditions. It is also possible for the parties to agree a contractual right to extend the term of the lease.

The law governing the renewal of business leases is contained in the Landlord and Tenant Act 1954 (“the 1954 Act”). The 1954 Act gives tenants a right to renew a lease at the end of the lease term subject to a landlord’s limited rights of opposition (the most common of which is redevelopment). However, it is possible for the parties to agree that the 1954 Act should not apply (this will occur at the time HoTs are being negotiated), meaning that the landlord will have an absolute right to remove the tenant when the lease term comes to an end. The 1954 Act is currently under legislative review and changes could be made to it, including its possible abolition.

A lease will contain restrictions on the types of business that the premises can be used for. You should discuss these with your lawyer to ensure that the restrictions do not conflict with your intended use of the premises or make the premises unmarketable on a disposal. Your lawyer should also ensure that the intended use is permitted by the relevant title, planning, statutory and any other consents or restrictions.

As soon as you are able and ideally before completing the lease, you should seek landlord’s consent to your proposed fit out. If the consent can be documented at the same time as entering into the lease, this avoids any delay to commencing the works and wasted rent-free period. Depending on the nature of the premises, your ability to make alterations is likely to be categorised into types of alterations that are either (a) prohibited, (b) require landlord’s consent (which may or may not be unreasonably withheld), or (c) permitted without landlord’s consent. Frequently, the lease will contain a provision that requires the tenant to remove any alterations it has carried out at the end of the lease term and make good any damage caused.

You will be responsible for keeping the premises in good repair and redecorating the premises at regular intervals (usually every three years for exterior and every five years for interior). The standard of repair and decoration will be a significant factor in your dilapidations liability at the end of the term. You should discuss with your agent whether this repairing and decorating liability should be qualified either by reference to a photographic schedule evidencing the existing condition of the premises, or by being restricted to certain types of disrepair. This is particularly relevant for older or second-hand premises (sometimes referred to as “grey space”). Beware, a schedule of condition should not be seen as a replacement for a full survey, as a qualification of your lease responsibilities does not mean the landlord is required to step in and remedy any issues that arise.

The right to transfer the lease to a new tenant or to sublet is an important right for you. No one signs a lease thinking they will need to dispose of it, but circumstances can change so flexibility is vital.

Most leases, except those granted for a very short term, should allow you to transfer the lease, provided that the whole of the premises are transferred. The consent of the landlord will usually be required. Whilst such consent should not be able to be withheld unreasonably, certain conditions will apply, typically the transferee having sufficient financial standing to comply with the lease obligations, if reasonable the provision of a rent deposit, guarantee or other security, and a requirement that the outgoing tenant guarantees the incoming tenant by way of an “authorised guarantee agreement” (usually referred to as an AGA).

The lease should give you the right to underlet the whole (or sometimes in part where configuration and size allows) of the premises with the landlord’s consent. This consent will usually relate both to the identity of the undertenant and also the terms of the underlease. The number of permitted underlettings of part is usually limited and underlettings would normally be excluded from the 1954 Act.

You should ensure that the lease permits the sharing of occupation of the premises with the tenant’s group companies. If any other sharing arrangements are anticipated these should be agreed with the landlord when heads of terms are being negotiated. Increasingly tenants require the ability to share with unrelated parties, e.g. contractors providing outsourced services.

These will typically include rights of access, rights to use common areas and facilities (including parking, toilets, showers, cycle racks etc.), rights to use services and signage rights. Additional rights may be dictated by your specific operational requirements, e.g. to install outside the premises air conditioning units, satellite dishes (or other IT equipment and media) or a stand-by generator (or other UPS system).

If a tenant occupies the whole or a significant part of a building (say 80%+), a tenant may want to consider requiring naming rights for that building. Conversely, securing prohibitions on the landlord re-naming the building may be desirable.

All leases will contain a right for a landlord to terminate (known as “forfeiting”) the lease in the event that the tenant fails to pay the rent, breaches its lease covenants or becomes insolvent. The tenant has a statutory right to apply to the court for relief in the event such termination occurs, which may generally be granted if the tenant can remedy the breach to the court’s satisfaction.