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The characteristics of a lease

What is a Lease?

What is a lease?

Most businesses occupy their premises under a lease. A lease gives the tenant exclusive use of the premises for a specified term, subject to the tenant paying the rent and complying with the provisions of the lease.

Tenant’s obligations

A typical lease will contain detailed covenants as to what a tenant must and must not do during the term. These provisions aim to protect the value of the Landlord’s reversionary interest in the premises. Standard covenants (which are included in our template leases) cover:

• Payment of rent
• Payment of utilities charges and business rates
• Payment of interest on overdue sums
• Keeping the premises in repair and good decorative order
• Allowing the landlord to enter the premises for certain purposes, including to carry out inspections and repairs
• Payment of the landlord’s costs, e.g. when the tenant applies for consent to assign the lease
• Permitted use of the premises
• Obtaining consent for alterations
• Requirements for signage
• Compliance with legal obligations, e.g. planning law, health and safety requirements
• Restrictions on assignments and underlettings
• Regulations to be observed for multi-let buildings, e.g. relating to use of common parts.

Landlord’s obligations

The landlord almost always covenants to insure the premises, with the tenant reimbursing the premium (or a proportion of the premium in the case of a shared building). If the building is multi-let, the landlord may covenant to provide services (e.g. heating, cleaning, concierge) subject to the tenant paying a service charge.

Security of tenure

Tenants of commercial premises have security of tenure under Part II of the Landlord and Tenant Act 1954. This means that tenants 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 the grant of a new lease. (In reality the new lease is usually agreed informally without the involvement of the court.) The landlord can only resist the grant of a new lease on certain grounds, e.g. because the landlord intends to occupy the premises itself or wishes to redevelop them.

The right to security of tenure can however be excluded by the landlord serving a formal notice and the tenant making a declaration confirming that it agrees to give up its rights to security of tenure.

Other lease provisions

A lease may also need to include rent review provisions, break clauses and rights to use shared facilities. These issues are discussed in more detail elsewhere in the Property information pages.

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