Leasing Business Premises Explained

Posted: Tuesday, 7 September 2010 @ 08:52

Leasing business premises can be a real minefield for the unwary business owner.  In this series of posts I shall go through the various aspects of a commercial lease to explain some of the legal jargon and also provide some lease negotiation tips along the way.

A is for Alienation

Well we're on our first letter of the alphabet and already we have some legal jargon to contend with.  'Alienation' is just a legal term which covers a tenant's right to deal with a lease.  The most common forms of dealing are selling the lease (otherwise known as assignment) and subletting.  Alienation also covers charging of leases and sharing occupation of the premises.

The alienation provisions in a commercial lease are one of the bits a tenant is most likely to have to understand as it is very common for a tenant to want to move or give up business premises. 

The crucial thing to remember about alienation is that the landlord's permission is normally required for anything you want to do.  If you want to sell your lease or sublet the premises, check first of all whether what you want to do is allowed.  Selling the lease is almost always allowed but subletting might not be and subletting or assigning part of the premises is frequently prohibited.

Once you have found someone who wants to take over your premises you will need to make a formal application to the landlord for consent. You will be responsible for paying any legal and surveyor's costs the landlord incurs in dealing with your application.

The landlord is entitled to require you to provide enough financial and other information about the proposed new tenant to make a judgment about their suitability and the lease will normally set out the circumstances where the landlord can withhold its consent.

The lease will also usually provide a list of conditions that the landlord can attach to its consent.  The main one from your point of view is a condition that you must stand as guarantor for the new tenant.  This condition is included in the vast majority of commercial leases and means that you are still not off the hook as if they default you can be required to take the lease back.

Subletting is a useful alternative to assignment if the proposed new occupier wouldn't be acceptable to the landlord as the main tenant or market conditions make it difficult to find someone to take on the premises at the current passing rent.  Beware, however, that some alienation provisions prevent you from subletting for less than the passing rent which removes one of the main purposes of subletting.  You are also still responsible to the landlord for payment of the rent even if the subtenant isn't paying you.

Look out for the next post - B is for Break Clauses

For further advice on commercial premises contact me on 01926 629005.

Steve Petty, Commercial Property Solicitor

This blog is not intended to constitute legal advice, nor is it intended to be a complete and authoritative statement of the law, and what we say might be out of date by the time you read it. You should always seek legal advice to confirm whether or how any information in this article applies to your particular situation. We offer a free telephone consultation to discuss your particular circumstances.

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