Underlease of Part of Unit on an Industrial Estate (Security of Tenure excluded)

Underlease of Part of Industrial Unit on an Estate (Security of Tenure excluded)

PROP.IND.18

This Underlease of Part of Industrial Unit on an Estate (Security of Tenure excluded) is one of a number of leases for industrial premises that can be granted for a term of more than five years:  

  • Lease of Self-Contained Industrial Unit (with Security of Tenure);
  • Lease of Self-Contained Industrial Unit (Security of Tenure excluded);
  • Lease of Industrial Unit on an Estate (with Security of Tenure);
  • Lease of Industrial Unit on an Estate (Security of Tenure excluded);
  • Lease of Self-Contained Warehouse or Storage Unit (with Security of Tenure);
  • Lease of Self-Contained Warehouse or Storage Unit (Security of Tenure excluded);
  • Underlease of Part of Industrial Unit on an Estate (Security of Tenure excluded).

There are also leases of other types of property and leases with shorter terms. If you are not sure which lease is right for you, please consult the Lease Comparison Matrix.

This Lease should be used by a tenant who has a lease of industrial premises, such as a factory, laboratory or workshop, and who wishes to underlet part of those premises for a term of more than five years (or for a shorter term but including a rent review). The Tenant under this Lease reimburses a specified proportion of the service charge and insurance rent paid by the Landlord to the Superior Landlord under the Superior Lease. There are rent review provisions. The Tenant’s right to security of tenure is excluded. Assignment of the whole of the Lease is permitted but underletting is prohibited. There are optional break clauses.

This template was updated in 2017 to give the Landlord and Superior Landlord rights relating to the Minimum Energy Efficiency Standards that apply from April 2018.

Care needs to be taken to ensure that this Lease is consistent with the Landlord’s Superior Lease. For example, the term should be no longer than the term of the Superior Lease. If there is a break clause in the Superior Lease, a similar break clause should appear in this Lease. The requirement to decorate the Premises (clause 3.1.8) should arise at the same time as in the Superior Lease. The Superior Landlord is likely to require any underlease to have rent reviews at the same time as the Superior Lease.

This Lease has been drafted on the assumption that the Superior Landlord owns the Estate, the Landlord has a lease (the Superior Lease) of a Unit on the Estate and this Lease is of part of that Unit. Most of the services will be provided by the Superior Landlord and charged to the Landlord by way of a service charge. The Landlord recovers a specified proportion of the Service Charge from the Tenant under this Lease. If the Landlord is providing any services itself (e.g. facilities for the Unit) it can recover a fair proportion of the cost from the Tenant under clause 3.1.32.

This Lease has Land Registry Prescribed Clauses at the beginning. If the Lease has a term of more than 7 years these clauses must be completed otherwise the Tenant will encounter problems when it tries to register the Lease at the Land Registry. Leases with terms of more than 7 years are subject to compulsory registration at the Land Registry.

The Prescribed Clauses are not strictly necessary for a lease with a term 7 years or less but it is advisable to use them as they helpfully record the main terms.

Prescribed Clause LR3 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 reference to a plan. A lease with a term of 7 years or less does not necessarily need to include a plan but it is strongly recommended that a plan is included so that the extent of the property is clear. A lease with a term of more than 7 years must contain a plan unless the letting is of the whole of the property comprised in the title number(s) referred to at Prescribed Clause LR2.

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.

In Clause 1 (definitions) there is reference to the Common Parts, the Estate, a Letting Unit, the Premises and the Retained Property. These terms describe the following areas:

  • Common Parts – the parts of the Estate which are not let to any tenants and which all tenants have the right to use (e.g. roads, paths, shared facilities such as lavatories)
  • Estate – the industrial estate of which the Premises form part
  • Letting Unit – a unit of accommodation within the Estate 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 Estate that are retained by the Superior Landlord. This includes the Common Parts, any conduits and the structure of any buildings.

The definition of “Permitted Use” makes reference to Use Classes B1, B2 and B8. These are offices, research & development and light industrial uses (B1), general industrial uses (B2) and storage and distribution (B8). A surveyor will be able to advise on the uses that should be permitted under the Lease.

The Lease provides for a rent review to take place on specified dates. The Clause 1 definitions of Arbitration, Independent Expert, Open Market Rent and Review Date all relate to rent review, as do the provisions of the Fourth Schedule. The definition of Open Market Rent has two formulations for the length of the hypothetical term. The Landlord’s surveyor should advise on which formulation is appropriate in the current market.

In Clause 2 the Landlord grants the Lease to the Tenant. The Tenant must pay the Rent and a specified proportion of the insurance rent and service charge paid by the Landlord to the Superior Landlord.

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.

Clause 4 contains the Landlord’s covenants. These cover quiet enjoyment (the Tenant’s right to use the Premises without interference from the Landlord) and the enforcement by the Landlord of the Superior Landlord’s covenants in the Superior Lease.

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 and the break dates should tie in with any break clauses in the Superior Lease. The Tenant’s break option is conditional on rent having 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.

The Lease must be executed as a deed. Various types of execution clauses are included and the parties should choose the appropriate clauses.

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 and be consistent with the Superior Lease.

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. 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 3.1.31 the Landlord and the Superior Landlord have the right to make further regulations from time to time for the better management and control of the Building.

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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