News & Insights

The pitfalls of not having a lease prepared before granting a tenancy of commercial premises

It is quite common for prospective landlords and tenants wishing to save costs when entering into a short term tenancy agreement to dispense with the need to instruct solicitors with the result that no formal lease arrangement is put in place.

The result is often either a verbal agreement to occupy the premises or simply a set of written terms set out in a letter from the landlord to the tenant. Whilst such a document may capture the key terms of the arrangement (rent, length of intended term etc) it will inevitably result in uncertainty on a number of key issues.

Disputes can then arise in the future in respect of repairing obligations, who is responsible for payment of buildings insurance and rates and other costs at the property, but the main area of concern from a landlord’s point of view is with regard to their ability to remove the tenant from the property in the future.

A tenancy agreement for commercial premises which is either for a fixed term or on a recurring periodic basis which is not specifically excluded from the provisions of the Landlord and Tenant Act 1954 will result in the tenant being protected by the provisions of that act. The result from a landlord’s perspective is that the tenant will acquire rights to request a new tenancy at the end of the original tenancy and this can only be refused by the landlord on very limited grounds, some of which involve the payment of compensation by the landlord to the tenant.

In order to avoid such difficulties it is crucial for all commercial tenancy agreements to be formally documented and for the Landlord and Tenant Act 1954 to be excluded if that is required by the landlord.

The Business Team at Foskett Marr Gadsby & Head LLP can provide advice to both landlords and tenants on all aspects of commercial property.