Commercial property | Commercial lease

Leasing commercial space as a landlord is subject to less regulation than letting to private tenants, but you should still make sure you use the appropriate legal documents to safeguard you and your property.

Renting business property

Make sure that you've checked potential tenants by obtaining a credit report and references from their employer, bank and previous landlord. Remember it is illegal to discriminate against potential tenants on the basis of gender, sexual orientation, age, nationality, race, disability or religion.

Consider your business needs when leasing commercial property as a landlord, or renting commercial property as a tenant. Take into account several factors, such as how much space you'll need, how you'll be using the property and your financial position. For further information read Entering a commercial lease.

Take care to agree a Commercial lease heads of terms to reflect the deal reached between you and the tenant. Getting it right at the beginning can save time and expense in knowing what you expect from the tenant and when you will get the property back. The heads of terms form the framework of the letting agreement. For further information read Commercial lease heads of terms.

A tenant under a commercial lease in England and Wales has an automatic right to the renewal or a completely new lease when the existing lease expires. This is known as 'Security of tenure'. This can be excluded from the commercial lease if it is 'contracted-out' from the existing lease and was agreed upon by both the landlord and tenant. The tenant must agree to contract-out of the right to security of tenure and it must be in a prescribed form in writing. Serve a Landlord's notice to exclude security of tenure and ask your tenant to sign an Agreement to exclude security of tenure if you want to exclude security of tenure from the commercial lease agreement. Note this does not apply in Scotland. For further information read Security of tenure and Commercial property in Scotland.

Check which letting document is most appropriate depending on the length of the term, the flexibility needed and the circumstances in which you want to let your commercial property. An Office space sharing agreement, a Commercial lease, a Licence to sublet are all documents relevant to renting out commercial property.

Consider asking for additional security, such as a guarantee or a rent deposit especially if the tenant is a new or young company. A rent deposit is a sum of money held as added security for the payment of rent and performance of obligations under the lease. This can be recorded in a Rent deposit deed.

Managing the property

Legally you must take general fire precautions to make sure people are safe in the property. Consider emergency exits, fire-fighting equipment, warning systems, fire safety drills and the removal any flammable substances. A Fire risk assessment must be kept updated and regularly reviewed. For more information read Conducting a fire risk assessment. Alternatively read the Government guide on fire safety in the workplace.

Ending the lease

A contracted-out lease will come to an end on the expiry date. The landlord doesn't need to serve notice on the tenant. If security of tenure has not been contracted-out in England and Wales, the tenant will have a statutory right to a new lease and the landlord can only refuse to grant a new lease on certain strict grounds. The landlord must show that any grounds are met. For example if the landlord can show that they need the property back as they intend to occupy the property themselves or for development purposes and have planning permission and the necessary finance as evidence to satisfy the court. For further information read Security of tenure.

The decision to 'contract-out' should be made at the start of negotiations between the parties and recorded in the Commercial lease heads of terms.

Ending the lease early needs planning at the heads of terms stage. A break clause gives the parties the right to end the lease early by serving notice on the other. The right can be limited to just the landlord or the tenant and may have conditions attached and a specific time limit to serve the Break notice. A tenant does not have the right to remain at the property after the date given in the break notice.

If the lease allows, a tenant may request consent (in the form of a licence) from the landlord to allow them to assign the lease (pass the lease on to another party) or sublet the property (let another party into the whole or part of the property). If the tenant is subletting the property a sublease will also have to be drawn up between the original tenant and the subtenant. For further information read Assigning a business lease and Subletting business premises.

Make sure you obtain details of the proposed new tenant/subtenant. Ask for references, such as bank details, trade and get professional and character references and consider whether you require any additional security such as a rent deposit which can be recorded in a Rent deposit deed.

For more information about ending commercial leases read How to terminate commercial leases.

_{*Contains public sector information licensed under the Open Government Licence v3.0.}

Rent commercial property

Make the right documents to let out your commercial property safely and legally

Essential Rent commercial property Documents

Renting business property

Managing the property

Ending the lease

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