New leases, assignments of leases and underlettings

Commercial Leases

Finding a tenant for a vacant property

When premises become vacant they should be marketed for letting by an agent with knowledge of the local market. When a tenant is found detailed heads of terms should be prepared setting out in layman’s language what has been agreed. Applications for any third party consents that may be required, such as from a mortgage lender or superior landlord, should be made at an early stage.

Negotiating the grant of a lease

A draft lease is issued by the landlord or its solicitors and the tenant either approves it or proposes amendments. The tenant also needs to raise enquiries to obtain information about the property, particularly regarding possible expenditure on repairs and service charge. If a rent deposit or guarantee agreement is required, these documents will need to be drafted and agreed at the same time as the lease.

Assignments of leases

If a tenant no longer needs its premises it may wish to assign the lease to a new tenant. The landlord’s consent is likely to be required and the landlord may require the outgoing tenant to enter into an authorised guarantee agreement (AGA) to act as guarantor for the incoming tenant. Once the landlord’s licence to assign has been obtained, the tenant and assignee can complete the assignment and the assignee will step into the tenant’s shoes.

Underletting

Another option for a tenant with surplus premises may be to grant an underlease of the whole or part of the premises. Again, the landlord’s consent is likely to be required. Once the landlord’s licence to underlet has been obtained, the tenant and undertenant can complete the underlease. The landlord will continue to collect rent from the tenant, however, and the tenant will collect the underlease rent from the undertenant.

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