Advice on new commercial leases

KEY CLAUSES IN COMMERCIAL LEASES

INTRODUCTION

Commercial Leases are lengthy documents and it is extremely important that both the landlord and tenant are fully aware of what the lease contains particularly in the case of a tenant where some obligations can be drafted to be quite onerous. I have set out some brief points in relation to the main clauses which cause concern in a commercial lease:

RENT

There are a number of considerations to be had in relation to rent:

- Fixed amount or a percentage? Rent in the retail sector is increasingly being determined as a percentage of turnover or a basic plus percentage of turnover. The clauses calculating the turnover rent can be quite complex and a tenant needs to careful in determining what exactly will be classified as"turnover rent".

- Will Vat be payable in addition to the rent?

- Rent free period (s)

- Rent reviews? Although upwards only rent reviews have been banned in relation to new leases careful consideration must still be had on the rent review provisions of a lease.

 

REPAIR CLAUSE

A commercial lease will contain a clause in relation to repairs of the property. There can be provision made for a fully repairing and insuring lease (FRI) which means that where a single tenant lets a property they pay for the full insurance premium and are obliged to carry out all repairs to the property.

The wording of this clause is extremely important as an obligation can be inserted into the lease to “put” the property into good repair.

Limitations can be placed on this repair clause with the correct drafting such as a limitation to internal repairs only or the use of a schedule of condition at the commencement of the lease otherwise this can be an expensive issue for a tenant .

 

INSURANCE

A tenant should be mindful of the insurance provisions in a lease. A tenant will be obliged to obtain employers and public liability insurance. In addition, a tenant may be obliged to obtain insurance cover for the property and provide a copy to the landlord however it is more usual for a landlord to insure the property and the tenant is then obliged under the terms of the lease to pay the premium. Careful drafting is required from a tenant’s point of view in relation to:

- Calculation of the insurance premium in a multi-unit property

- Waiver of subrogation rights

- Reinstatement of the property

- Payment of rent during insurance works

 

ASSIGNMENT AND SUBLETTING

A commercial lease will contain a clause whereby a tenant is restricted from assigning or subletting the property without the landlord’s prior consent. Again this is an important clause for a tenant to note and proper drafting around this condition will ensure that the conditions upon which the landlord will grant his consent to an assignment or sublease are not too onerous.

 

BREAK CLAUSES

Break clauses often contain strict criteria which must be carefully reviewed by a tenant to ensure that if such a break is required in that he will be in a position to fulfil the criteria set out. Generally strict notice periods are contained in a lease and if carefully drafted by a landlords solicitor the break option can be lost if the notice period is not adhered to.

 

TERMINATION OF LEASE

A lease will generally provide that if a  tenant is in breach of any of the covenants the landlord can terminate a lease. In the case of a breach of covenant a landlord will usually have to give the tenant notice of the breach and time to remedy it before bringing an application to court.

It should be noted that the one exception is where the breach is failure to pay rent. A lease will usually contain a covenant allowing for the Landlord to peacefully re-enter a property if a tenant fails to pay his rent within a specified time.

As mentioned the above is a short summary of some of the main clauses in a lease however all leases are different depending on the clients and the circumstances involved.

 

 

Email: This email address is being protected from spambots. You need JavaScript enabled to view it.     Web: www.cgsolicitors.ie

 

 

 

 

 

 

 

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