Commercial property

A service charge is often used by landlords to recover the costs of maintaining and providing services to the property and the surrounding estate. This ensures that the maintained areas are kept in good condition. Service charge agreements are bespoke to each property and what services are included will vary on a case by case basis. Often a landlord will estimate the likely cost of the services for the year and charge this to the tenant. If there is any discrepancy between the estimate and the actual service costs, this will likely be resolved at the end of the service charge year.

The Landlord and Tenant Act 1954 (the 1954 Act) is a piece of legislation that outlines some of the rights and obligations of landlords and tenants of commercial properties. It will only apply if: the tenant is occupying the property for business purposes, the property is being occupied under a lease (not a licence) and the lease has not been excluded from the 1954 Act. If these circumstances are satisfied, then the lease benefits from ‘security of tenure’. This means there is an automatic right for the tenant to remain after the end of the lease term. The lease will only end if a set procedure is followed (as outlined in the 1954 Act) by the landlord or tenant.

 A tenancy can be excluded from the 1954 Act by following a set procedure of notices and declarations before any agreement for lease is entered into.

 When an excluded tenancy ends, the tenant does not have the automatic right to renew the lease. This means the lease will terminate on the agreed end date without any obligation on the landlord to offer a renewal. Therefore, the parties should plan accordingly and begin negotiations before the end of the term if they wish to continue the current agreement.

Once you have identified a suitable property for your business, you will need to contact the landlord or the agent to negotiate the heads of terms. These outline the principal terms of the lease, such as how long you wish to lease the property for and how much rent will be paid etc. The parties will then need to instruct solicitors who will draft and negotiate the lease documents. Once the documents are agreed, each party’s solicitor will report to their client on the contents of the documents to make sure they understand their rights and obligations. The documents will then be sent to the landlord and tenant for signature. If the tenant has agreed to provide rent in advance or a rent deposit, this will need to be provided to their solicitor ahead of completion. The lease is then completed, and the tenant is given the keys to the property (often the keys are collected from the agent).

You will have possession of the property and can commence your business operations (under the terms of the lease). You must ensure you comply with your tenant obligations, for example paying rent on time and maintaining the property. Depending on your agreement with your landlord you may need to insure the property from completion. It is worthwhile to note down any key dates, such as a break date, rent review date or the end of the term so that these are not overlooked.

In some circumstances your solicitor may need to complete a stamp duty land tax return, to notify HMRC of the transaction. This will need to be completed within 14 days of completion of the lease. If the lease term is over seven years it will need to be registered with HM Land Registry, your solicitor will be able to submit this application and monitor its progress. When the application is completed, your lease will be allocated a leasehold title number, and you should be provided with a copy of the completed title register for your records.