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Leasing a premises to carry on a business may seem like a straightforward process. However, it is a very risky transaction. It can have cost implications for the length of the Lease. The Lease will govern the relationship between Landlord and tenant, and all questions of liability will be referred to the Lease.

Due to the commercial nature of a business to business transaction very few protections are implied by Statute. As such what the Lease says is final and any action brought to Court by a Landlord or Tenant will be based on the operative provisions of the Lease.

There are notable benefits to renting a property for business.  These include a limited finance requirement, control of maintenance, the option to move in the future, savings on tax and the avoidance of any decrease in the market value of the property. In creative accounting it also removes a large mortgage liability from the balance sheet.

In any event a lease is a serious transaction that can affect your business for a long time. You should ensure at the outset that you get professional help to negotiate your obligations so that you ensure you get the best possible terms.

While negotiation depends on the position of the parties you should always have regard to the following issues.

1)    The Premises

The Lease will determine the extent of the premises demised to the Tenant. The definition of the premises will carry over to the entirety o the Lease and will effect the extent of:-

a)    Repairing obligations
b)    Rent and rent review
c)    Insurance
d)    Rent suspension if the premises are destroyed
e)    Service Charge

The definition of the premises has knock on effects on almost the entirety of the  Lease.

2)    Repair

In any Lease it will be the Tenants obligation to keep the premises in repair. Any dispute as to repair will be referred to the wording of the Lease. A Lease may require the Tenant to keep the property in repair. It may also require the Tenant to put the property in a better state of repair than the property was in when the Lease was taken. In any event any Tenant should be wary of the repair obligation and should look to exclude repair for any:-

a)    Insured risks
b)    Inherent defects
c)    Criminal damage

Moreover on determination of the Lease the Landlord will look to commission a schedule of dilapidations. The Tenant will be required to carry out the repairs to the property which are needed by the Landlords Surveyor. To ensure that the Tenant is not unduly penalised the Lease should refer the repairing obligation to a schedule of dilapidations.

3)    Insurance

Insurance provisions vary dependant on the type of Premises and the Landlord. If the landlord is to insure the tenant will reimburse. If the Tenant is to insure the Lease will contain provisions to ensure that the Tenant insures the property to the level required by the Landlord.

In both situations the Lease will determine what risks will be insured against. The insured risks are important as they relate directly to the repairing obligation. If any damage is caused which is not an insured risk the Tenant will have to repair or reinstate the property. Further if the Tenant vitiates the insurance policy he will be required to reinstate the property.

4)    Criminal Damage

In Northern Ireland the Criminal Damage (Compensation) (Northern Ireland) Order  1971 provides for the payment of compensation to either the Landlord or the Tenant. The Lease will determine who can claim. In developments where there are a large number of units the Landlord will retain the ability to claim compensation to the exclusion of the Tenant. In any other situation the Tenant is left to claim compensation. It should be noted the government rarely gives the full cost of repair or reinstatement as they do not want to pay for the property to be put in a better condition than it was already in. The betterment risk will be with the party who is making the claim and the size of the risk will increase with the age of the premises.

5)    Rent Suspension

Should the Premises be destroyed by an insured risk or by criminal damage the Landlord will obtain the insurance monies and will often have the ability to re-instate the premises or if this is not possible walk away. In either event the Landlord will not want the Tenant to walk away immediately.  The Tenant will be bound to the terms of the Lease however will offer a period where the rent is suspended. This will often link to the rent suspension insurance he has obtained.  The lease will state the length and criteria for suspension.

6)    Alienation

The Lease will state how it can be transferred. Often this will be determined by the type of property and Tenant. In a commercial Lease it is often the case that the Tenant can with the Landlords consent assign, sublet, or charge the whole of the premises but not part of the premises. There may also be a prohibition on parting with possession of the premises. In any event the provisions will depend on the length of the Lease and both the Landlord and Tenant should review the Lease to ensure that the alienation provisions correlate with their intentions. The tenant should note any conditions which the Landlord may put an alienation including rent deposits, guarantors and the requirement of conditions.

7)    Use

The Lease determines the exact use which the premises can be used for. This may be specific if the unit is in a shopping centre or general if it is in a warehouse. In any event it should be checked as it will affect the Tenants ability to assign the premises and may affect the Landlords ability to review the rent.

8)    Guarantee or Rent Deposit

A Landlord will often want a Guarantor to guarantee the obligations of the Tenant. This is a more secure way of ensuring the Tenant fulfils his obligations and often gives the Landlord a secondary obliges who they can bring an action against if the Tenant defaults.

The Tenant will want to give a Rent Deposit. Although this may be up capital it will limit the amount the Tenant can lose in the event they cannot afford the Lease.

9)    Covenants

The covenants in the Lease should be revised to ensure there are no onerous covenants to be upheld by either the Landlord or the Tenant.

10)    Other Issues

In reviewing the risk a Solicitor will also have to ensure that the Landlord has good Title to the premises. Ensure any 3rd party bank or superior Landlord has consented. A Solicitor will also look at the access, responsibilities for repairing roads and media, planning permission, credit rating of the Landlord or Tenant, compulsory purchase orders etc.

11)    Completion

You should always make sure the Leases are correctly executed otherwise they may be void.  Furthermore if you are taking a lease you must make sure it is correctly registered (if longer than 21 years) and Stamp Duty Land Tax is paid.