Lease to Charity of Office in Shared Building
When to use this Lease Template
This Lease to Charity of Office in a Shared Building should be used to let office premises to a Charity Tenant for a term of five years or less where the office or offices are within a shared building. This template will typically be used where a charity has previously, perhaps informally, used a small office space (e.g. at the home of one of its trustees, or a space shared with another person or small organisation) but it has now grown so that it needs to be administered from a larger office, in particular where it is staffed on a day to day basis by one or more employees.
Assignment, Underletting, Break Clause, Service Charge, Security of Tenure
Assignment of the Lease as to the whole (but not part) of the Premises is permitted but underletting the whole is prohibited (see Clause 3.1.21). Underletting of part is also prohibited (by Clause 3.1.21) unless the words “or any part” are deleted. This means that if during the period of the Lease the Charity outgrows its office and wishes to move elsewhere, it can find another tenant to take over the lease of the whole. Conversely, if it does not grow further, or shrinks and does not need such a large office any longer or it cannot any longer afford the level of rent charged, it does not have the right to take on a subtenant to occupy all of the office, nor to take on a subtenant to occupy part of it if the words “or any part” are retained. There are optional break clauses (see Clauses 7 and 8) but if the Landlord does not include in the Lease a break clause giving the Charity Tenant a right to end the Lease after a certain minimum stated period during the term of the Lease, the Charity will not be able to give up the Lease until the end of its term: it will only have the option of assigning the Lease. A service charge is payable (see the Service Charge provisions). Because of the short term, there are no rent review provisions. The Tenant’s right to security of tenure is excluded (see Clause 9).
Lease Template can be Proposed by either the Landlord or the (Charity) Tenant
If you are the proposed Landlord, you might (as is usual) decide not to allow the Charity Tenant to submit a draft Lease to you for comment or agreement, in which case you will provide a draft to the proposed Charity Tenant for comment or agreement.
However, if you are the proposed Charity Tenant, you might decide to ask the Landlord to allow you to provide a draft Lease to him. If he is amenable to that suggestion, then this template will provide a basis of that draft which contains a reasonable balance of rights/obligations as between the Landlord and Tenant. A number of optional clauses in the template are marked “Tenant may wish to delete” to indicate that if the Charity Tenant prepares the draft Lease for the Landlord to consider, the Charity may wish to omit those clauses (or some of them) from the draft since they favour the Landlord. If the Landlord reviews the Tenant’s draft and requests any amendments to it, and you, as the Charity have any concern about any of those amendments, you should seek legal advice.
Conversely, if you are the Landlord and you are preparing the draft Lease based on this template, you will probably wish to retain the clauses marked “Tenant may wish to delete” in your draft, and in particular, in Clause 3.1.21, if you are the Landlord, you will either retain the words “or any part” in each instance, or if you accept the Charity Tenant’s request to delete those words, you will want to add further clauses to deal with regulating any dealing with part.
Where you are the Charity Tenant but the Landlord insists on basing the agreement on a draft which he puts forward, (i.e. one which is not based on this template) this template can still then serve as a valuable checklist for your Charity: if the Landlord’s draft includes anything not in this template or excludes anything which is in this template, you will be alerted by that to the fact that, potentially, the Landlord’s draft might from your viewpoint be unreasonable or risky in certain respects. Again, the charity should seek legal advice where it has any doubts about the Landlord’s draft.
Land Registry Prescribed Clauses
This Lease has Land Registry Prescribed Clauses at the beginning. These are not strictly necessary for a lease with a term of less than 7 years but they are included as they helpfully record the main terms.
Prescribed Clause LR3 provides alternative wordings for the description and details of the Charity Tenant. The alternatives cover all of the more common legal forms of charity, i.e. CIO, Charitable Company Limited by Guarantee, Charitable Trust, and Charitable Unincorporated Association.
Prescribed Clause LR3 also includes a field for an optional Guarantor. If there is no Guarantor, this field can be left blank and Clause 10 (Guarantor's covenant) should be deleted.
Prescribed Clause LR4 makes optional reference to a plan. It is strongly recommended that a plan is included so that the extent of the property is clear. The plan should as a minimum show with red edging the property that is being leased to the Tenant. The plan may also need to show the Common Parts (a defined term in the Lease) and the areas over which rights are granted to the Tenant in the First Schedule to the Lease if these areas cannot be adequately described in words.
Details of other Clauses
In Clause 1 (definitions) there is reference to the Building, the Common Parts, the Landlord’s Neighbouring Property, a Letting Unit, the Premises and the Retained Property. These terms describe the following areas:
- Building – the building in which the Premises are situated
- Common Parts – the parts of the Building which are not let to any tenants and which all tenants have the right to use (e.g. corridors, toilets)
- Landlord’s Neighbouring Property – property owned by the Landlord adjoining or near the Building
- Letting Unit – a unit of accommodation within the Building that is designed to be let to a tenant
- Premises – the property that is let to the Tenant under the Lease. The Tenant is given an “internal demise” which means that the Tenant is responsible for the plaster on the walls but not any structural parts of the Building
- Retained Property – the parts of the Building that are retained by the Landlord. This includes the Common Parts, any conduits and the structure of the Building.
The definitions of Accounting Date, Financial Year, Initial Service Charge, Service Charge, Service Cost and Services all relate to Service Charge, as do the provisions of Clauses 4.3 and 11. The list of services in Clause 4.3 must be checked carefully and amended to reflect the services the Landlord will actually provide.
In Clause 2 the Landlord grants the Lease to the Tenant. The Tenant must pay the Rent, an Insurance Rent (to reimburse the Landlord’s buildings insurance premium) and the Service Charge.
Clause 3 contains the Tenant’s covenants. These cover matters such as payment of utilities charges, repair, decoration, safety, the Landlord’s rights of entry, use, alterations, alienation (assignment and underletting), indemnity and payment of Landlord’s costs. The Clause also gives the Landlord rights relating to the Minimum Energy Efficiency Standards which came into force in April 2018.
Clause 4 contains the Landlord’s covenants. These cover quiet enjoyment (the Tenant’s right to use the Premises without interference from the Landlord), insurance and provision of the Services.
Clause 5 contains various standard lease clauses including forfeiture and suspension of rent if the Premises are damaged so as to be unfit for use.
Clause 6 deals with service of notices by the Landlord and Tenant.
Clauses 7 and 8 contain optional break clauses (termination rights) for the Landlord and Tenant. These clauses should be amended or deleted as appropriate. The Tenant’s break option is conditional on rent have been paid up to date, the tenant giving up possession of the Premises (i.e. vacating) and the tenant not leaving any underleases in place. If these conditions are not satisfied, the Tenant’s break will not be effective and the lease will continue. If the Tenant is in breach of other terms of the Lease, e.g. necessary repairs have not been carried out, the break will be effective but the Landlord will retain the right to sue the Tenant for any breaches of the Lease.
Clause 9 deals with exclusion of security of tenure. Reference should be made to the Guidance on Excluding Security of Tenure and the associated forms.
Clause 12 contains wording applicable (under the Charities Act 2011) where a lease is granted to a charity and the charity is a non-exempt charity. Most charities are “non-exempt” but note that if your charity is exempt, you will need to take advice as to the appropriate clause to be included instead of this one.
The First Schedule sets out the rights that the Tenant has to use other property. These rights should be checked carefully and amended to suit the circumstances.
The Second Schedule sets out the rights that the Landlord has in respect of the Premises, including rights of entry and the right to carry out work to neighbouring property. It also includes provisions relating to Environment Performance. If any additional rights are required they should be added to the Second Schedule.
The Third Schedule has a set of regulations the Tenant must comply with. Under Clause 3.1.30 the Landlord has the right to make further regulations from time to time for the better management and control of the Building.
The Lease must be executed as a deed. Various types of execution clauses for the Landlord and the Charity Tenant are included, and the parties should choose the appropriate clauses. The various alternative Charity Tenant execution clauses differ from each other to take account of how each legal form of charity must/may execute a deed.
Optional phrases / clauses are enclosed in square brackets. These should be read carefully and selected so as to be compatible with one another. Unused options should be removed from the document.
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