Choosing a rental agreement
When deciding what type of rental agreement will be most appropriate, there will be a range of relevant considerations. You might want to think about:
the kind of property
how you want the property to be used
the length of time that you are willing to let the property out for
the needs of your prospective tenants
Different types of rental agreements will give your commercial tenants different sets of rights. Taking time to identify the best kind of rental agreement for you will prevent you from giving your tenant more rights in the property than you intended.
A commercial lease is a contract between a landlord and a business tenant. It gives the tenant the right to use the property for a commercial purpose for a set period for an agreed rent price. Typically, commercial leases will be for a period of between 3 and 25 years, although recent trends have suggested that the average length of a commercial lease is now around 8 years. The lease will outline the rights and responsibilities of the landlord and the tenant during this period. Rent will usually be paid quarterly in advance, although you can negotiate a different agreement with your tenant if you want.
The benefits of a commercial lease
The key benefit of a commercial lease is that it offers security for both landlord and tenant. Agreeing a rental contract that lasts for several years means that the landlord can rely on regular income for the property for many years, while the tenant gets long-term stability in terms of running their business.
A licence gives a tenant the right to use your property for a short period. It is common for a licence to be used rather than a lease when a tenant needs premises to solve a short-term property requirement, for example, to carry out a one-off job. Licences will typically last for a period of up to one year.
Benefits of a commercial licence
A licence affords both parties a higher degree of flexibility than a lease as neither is tied into a long-term contract. Landlords do not need to serve notice on the tenant at the end of a licence period. Once the licence ends, the tenant has to move out.
Potential problems when using a licence
When using a licence to rent your property, it is important to get advice from a commercial property solicitor.
A lease requires three things:
exclusive possession (the tenant is the only person allowed to use the property)
a term (an agreed period that they will have the property for)
Often, when you agree on a licence, these three things will be present. You may have thought you have agreed on a licence, but on closer inspection, a court may decide that a lease is in place instead of a licence. This will mean that your tenant has more rights in the property than was intended.