Commercial Leases – Protect your Property
By Samuel McMahon
17 November 2017
At the start of a commercial or retail lease, things can often seem to a landlord to be on the up. The tenant may have a sound business and trading history, or you may just be relieved to have found someone keen to take over a property that has been sitting vacant.
By the end of the lease (whether by expiry, abandonment or eviction) things may look different. And you may need to chase up rent arrears or outgoings not covered by the security deposit. The steps taken before the lease commences can have a huge impact on whether you have much likelihood of recovering these arrears, or whether they are little better than numbers on paper.
- Have a lease in writing before you hand over the keys. Put the other way round, do not hand over the keys until you have a lease in writing signed. By law, if there is not already a written lease, then the lease commences when you hand over the keys, and not when you finally sign the tenant up. This can spell disaster for working out basic things like whose responsibility it is to pay for what, or even what rent increases will take place over the life of the lease. Once a lease has commenced, you no longer have the power to refuse to enter into the lease in the case that a tenant will not agree to what, for you, is an important or essential provision.
- Have a personal guarantor (normally the director or directors of the tenant company). Equally importantly, have the guarantor fill in a comprehensive form setting out his or her personal assets. As a last resort, you may need to liquidate these assets in order to cover any unpaid arrears. So if no guarantor owns real estate with adequate equity, it could be a wise move to request a personal guarantee from a person who does. Or, if the real estate is jointly owned, seek a guarantee from the other owner.
- Catalogue carefully, and with photographs, the condition of the premises prior to handing over the keys. Ensure that the lease clearly includes details about the condition that the tenant is required to hand the premises back to you.
- During the lease, keep an eye on the arrears balance. Act early if there is a breach to prevent the situation becoming unmanageable. It may seem that you are facing a choice between continuing to receive rent or having several months of no rent while a new tenant is sought. If the current tenant is not actually paying you the rent required under the lease, the growing balance payable may turn out to be worth virtually nothing and it may be better for you to cut your losses and look for a new tenant now.
We strongly advise all commercial and retail landlords seek legal advice prior to entering into any new lease, when seeking to terminate a lease, and when seeking to enforce payment of arrears.
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