One fundamental purpose of a commercial lease is to ensure that the landlord can receive income from the tenant in the form of rent, by putting necessary provisions in place. The lease should include various details such as the date of the first rent payment, the payment dates going forward and whether the rent is payable in advance or in arrears. The term ‘rent’ can also include other payments that may become payable, such as service charges and insurance.
As a tenant, it is important to consider what would happen should the premises become damaged or unfit for purpose. Without specifying otherwise, the tenant would be obligated to continue making rent payments. Therefore, it would be beneficial to the tenant to insist that terms are inserted into the lease allowing rent payments to be suspended should the premises become unfit for purpose.
However, this is only likely to be the case where the damage is a result of an ‘insured risk’ and not by the tenant themselves or general wear and tear. In most commercial leases, it will be the tenant’s responsibility to keep the property in a good state of repair, therefore, failing to comply with this does not allow the tenant to suspend rent payments. This highlights the importance of tenants having the necessary surveys done before renting premises to ensure that they are satisfied with the condition.
Should the lease exceed a five-year term, it is common to include a rent review clause. There are different types of review clauses that may be inserted into a lease and these are as follows:
- Fixed increases – At every review date the rent will increase by a fixed amount.
- Index-linked clauses – The rent will rise or fall to reflect the value of money at any given time (inflation).
- Turnover rents –Determined by the tenant’s business turnover.
- Open market rent review – Considers the current property market and the best rent that is obtainable if the premises were let.
Some landlords may grant the tenant a rent-free period in the lease, particularly when the premises are unavailable for immediate occupation. The premises may not be fit for purpose or the tenant may require more time to ensure that the premises is ready for use. This may also be used as a way of attracting certain tenants or used as an incentive to encourage the tenant to enter into the agreement.
Before coming to any agreement regarding rental payments, it is highly recommended that both landlord and tenant seek independent advice from a qualified valuer. If you would like to discuss a commercial lease and the rental clauses that best suit your needs, then contact our highly experienced Commercial Property team today.