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Getting Ready to Lease, 6th March 2013 - Click for larger version Getting Ready to Lease, 6th March 2013

Normally, where a commercial property is leased, the landlord will have advertised the premises via a letting agent. The eventual tenant will have noted interest, the parties will have negotiated and agreed upon heads of terms and once these heads of terms are in place, the solicitors will be instructed.

However, we often find that the legal process is delayed due to the parties (landlord and tenant) not being aware of the practical requirements which are likely to be placed upon them during the legal negotiation. So, for reference, here are some practical points which budding landlords and tenants may wish to consider:

Landlord

Title Deeds – these will be required for review by the tenant’s lawyer and to allow the lease to be drafted to accurately reflect the subjects owned by the landlord. The titles will generally be held by the landlord’s bank (if the property is secured) or otherwise held by the landlord or their previous solicitors. It can often be a lengthy process to obtain the return of the titles and therefore it is best to try and locate and obtain them as early as possible.

Energy Performance Certificate – landlords are now required by law to provide this to a prospective tenant. Most commercial surveying firms can provide this service.

Asbestos Survey – property owners/occupiers are obliged to take the necessary precautions in relation to asbestos. If there is any likelihood of this harmful material being located within the property, the landlord should obtain an asbestos survey. As with an energy performance certificate, this is something which can be obtained from most commercial surveying firms.

Collateral Warranties – in higher value transactions, where substantial works have recently been carried out to the property, then the tenant may require a collateral warranty from the contractor. This would apply in a situation where (as is the norm) the tenant has a full repairing obligation. They would expect the contractor to provide the warranty to them so that where a defect arises due to improper performance by the contractor, the tenant can pass the repairing cost under the lease on to the contractor.

Landlord’s Works – often, the tenant will require that the landlord carries out certain works to the property as part of the lease deal. Generally, the tenant will require that these works are carried out before they take entry. If this is relevant, the landlord and tenant will require to agree upon the necessary drawings/specifications to document these works so that they can form part of the lease contract. Whilst the landlord may not wish to commence these works until the lease missives are concluded, it is helpful to have these documents prepared as early as possible.

Lender’s Consent – where the property is subject to a standard security, the landlord will require to obtain lender’s consent. Whilst this used to be a very quick and easy process, many banks are now instructing separate solicitors to review the heads of terms or even the lease itself.

Other matters – tenants’ solicitors will tend to require sight of various searches. These can be obtained by the landlord’s lawyer. The landlord’s lawyer will also generally deal with the drafting of the legal documentation (such as missives, lease, licence for works, deposit agreement, guarantee etc). Unlike sale/purchase deals, the tenant will not generally require to see the local authority consents relating to the construction/alteration of the premises.

Tenant


Fitting out – often, the tenant will intend to carry out fitting out works at the property. Whilst these works will commence once they take entry, they will be well advised to obtain landlord’s consent to these works during the lease negotiations. Normally, (as with the landlord’s works) the tenant will require to prepare drawings/specifications to document these works. There is often a delay in the legal process in obtaining these items and therefore it is wise to obtain these from their architect/engineer as early as possible in the legal process.

Local Authority Consents – the landlord never gives any warranty that the tenant’s proposed use of the subjects is permitted in terms of the planning legislation. Therefore, the tenant should make enquiries in this regard as early as possible. Further, if the tenant is requiring to carry out substantial fitting out works to the property, they may wish to structure the deal in such a way that the lease is conditional upon them obtaining the relevant local authority consents. Clearly, this process can take several months and they should therefore factor this timing into their considerations for entry.

Rent etc – obviously, in the absence of a rent free period, the rent will be payable at entry. It is worth noting that the tenant will most likely incur other costs at this time also, including stamp duty land tax, registration dues, solicitors’ and other professional fees, buildings insurance premium, contents insurance premium, rates, utility set up charges etc.

Photographic Schedule – it is becoming more and more commonplace for tenants to limit their repairing obligation by reference in the lease document to a photographic schedule of condition. This documents any defects in condition at entry and allows the tenant and landlord to document in the lease that the tenant will not be required to make good these defects at expiry. Due to the fact that this document benefits the tenant, it is up to the tenant (as opposed to the landlord) to instruct (at their own cost) a surveyor to prepare this for them. This should be done during the course of the lease negotiation, once the point has been approved in principle by the landlord.

Phones/Utilities etc – as mentioned above, the tenant will often require to make the requisite arrangements with the relevant service providers in this regard.

Whilst complications will always arise during the negotiation of any commercial deal, if the parties have visibility in advance of their respective “to do lists” then this should save time at a later date and probably benefit both sides.

If you wish to discuss this or any other matters relating to commercial property, please contact our Commercial Property Director, Ian Anderson.

Last updated: 1.38pm, Wednesday 6th March 2013

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