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Negotiating the grant of a new commercial lease

Negotiating and Completing the Grant of a Business Lease

Negotiating a business lease 

Once heads of terms have been agreed the next step is for the landlord to issue a draft lease (or licence) for the tenant to approve. The tenant will approve the draft lease or seek to negotiate amendments to it. The tenant also needs to carry out title investigations and raise pre-contract enquiries to ensure it has all the information it needs about the property and its liabilities under the lease.

Will the tenant have security of tenure?

In general, tenants of commercial premises have security of tenure, which means they have the right to remain in occupation of the premises at the end of the term of the lease and can apply to court for a new lease to be granted. The landlord can only resist such an application on certain grounds.

The landlord and tenant can agree that a lease will be granted without security of tenure. The landlord must serve a “landlord’s notice” on the tenant. The tenant then signs a declaration accepting the consequences of entering into a lease without security of tenure. A statement must be included in the lease referring to the landlord's notice, the tenant’s declaration and the parties' agreement to exclude security of tenure.

Rent deposits and guarantees

If the tenant’s trading history does not meet the landlord’s requirements (new or recently formed businesses often fall into this category) the landlord may require a rent deposit to be provided or require someone to personally guarantee the payment of rent and the performance of the other lease covenants.

A “Code-compliant” lease? 

The Code for Leasing Business Premises in England and Wales 2007, also known as the Commercial Lease Code, aims to promote efficiency and fairness in Landlord and Tenant relationships. It is not compulsory for Landlords to follow the Code but many choose to do so.

The Code contains guidance on how lease negotiations should be conducted, the provisions that should be included in a lease, and how Landlords should deal with Tenants during the term of the lease and when it comes to an end.

Legal requirements following completion of a lease

Once a lease has been granted the tenant may need to pay stamp duty land tax (SDLT) and register the lease at the Land Registry. Whether these steps need to be taken depends on the length of term of the lease and the amount of rent payable.

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