The Team

Negotiating the Commercial Lease - two sides of the same coin
29/08/2019
Negotiating the Commercial Lease - two sides of the same coin

We are often asked by clients – both landlords and tenants – to act on their behalf when they wish to enter into a commercial lease. We would like to get something straight right from the beginning - there’s no such thing as a “standard” commercial lease!
 

Whilst attempts have been made to “standardise” the terms in commercial leases, there is always the requirement to review and make changes. Admittedly, many commercial leases have similar clauses and many solicitors, when acting for the landlord, will have their own preferred style of lease. Where the difference comes is the extent of the negotiation of the terms of the lease.
 

Long gone are the days when a tenant would simply accept the terms of the lease the landlord provides. Similarly, a landlord might well want to ensure control over specific aspects of the lease that another landlord might not care about.
 

We act on behalf of both landlords and tenants in this area – although we must emphasise that we will not act for a landlord and tenant in the same lease. Each party to a commercial lease must be separately represented to ensure they get the best outcome available to them from the negotiation.
 

Commercial leases also need to take into account the type of property and business conducted from the premises and whether there are any “special” considerations. For instance, if the premises are to be let as a public house, there will be liquor license implications or, if the premises are in a shopping centre, there will likely be a whole different set of implications!
 

This article only scratches the surface of some of the areas that tend to be contentious.
 

Acting for Landlords
 

The landlord is the owner of the premises and will generally want the premises handed back to it in at least the same condition as they were when the lease was first granted.
 

For that reason, it’s normally the landlord who will design the lease and set its terms and conditions. For that reason it is likely that the landlord will want the lease to be as restrictive as possible and place as much risk on the tenant.
 

 A typical type of commercial lease in Scotland is called a Full Repairing and Insuring Lease and that’s the type the landlord will generally seek to use to preserve its interest in and the condition of the premises.
 

There are some fundamentals contained in a Full Repairing and Insuring Lease. As the name suggests, the lease imposes repairing obligations on the tenant – usually requiring the tenant to keep the premises in “good and tenantable order and condition”. It also requires the tenant to pay for the premiums to insure the premises. There will be a raft of conditions regarding the use of the property, rent review provisions and obligations on the landlord as well as the tenant.
 

From a landlord’s perspective, it is often thought that the more draconian in the landlords favour the lease is, the better.
 

From a solicitor’s perspective, when instructed to act on behalf of the landlord when creating the commercial lease, it is very important to listen to the landlord’s priorities and to make sure that these are reflected in the terms of the lease.
 

Acting for Tenants
 

When we are instructed to act for a tenant, we usually receive the offer to lease and the draft lease from the landlord’s solicitor. We will also frequently be told that the landlord will accept no adjustment to the terms of the lease because this is their “standard” lease. When acting for a tenant, we take that statement with a pinch of salt – and take the view that everything in a commercial lease is open for negotiation – right down to the Notice Clause that sets out how notice should be given by one party to the other.
 

Whilst the landlord might be looking to have the property returned in “good and tenantable order and condition”, that condition can be very subjective. From a tenant’s perspective, it is essential that that condition is clearly defined at the outset to make sure the tenant doesn’t need to put the property into any better state or condition as when it entered into the lease.
 

If alterations are carried out to the property, even with the landlord’s consent, the lease may contain conditions to reinstate the premises to their condition at the start of the lease. The tenant might argue that the alterations have improved the premises and their removal would devalue the premises. The landlord may, however, insist on the reinstatement even if it’s just a bargaining chip to try to extract further money from the tenant.
 

We cannot act on behalf of both parties to a commercial lease in any circumstances – the interests of the landlords and tenants conflict right across the terms of the lease. That means that whether we are acting for a landlord or a tenant, we will only act in your best interests and seek to get the best deal possible for you.
 

Also, because we do act for tenants in some leases and landlords in others, we are very well versed in the arguments put forward to support or reject specific clauses in the lease.
 

You should also remember that it’s not only in the negotiation stage you can use us as your solicitor. We are frequently involved in rent review situations, requests for consent, forcing or resisting irritancy and eviction and dealing with the thorny issue of dilapidations.
 

A good commercial lease is one that works for both the landlord and the tenant – it must be fair and balanced and we will act on our client’s behalf in seeking to achieve that.
 

If you are thinking about entering into a commercial lease or are in a commercial lease and need any advice about it, please get in touch.