Frequently Asked Questons

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What is the Law Society business lease?

The Law Society Business Lease is a lease designed by The Law Society for relatively short terms of simple buildings, which helps to speed up the negotiation process. The Law Society have done this by creating a neutral lease — that is a lease that is generally fair for both landlord and tenant. That said, it is still normal for a certain amount of customisation to be made to the Lease, particularly on smaller premises where for example, the repairing obligations may change or the rent review provisions may be altered.

When should the Law Societh Business lease be used?

The Law Society Business Lease is ideal for lower value leases and a perfect application would be for a retail shop unit on the high street (shopping centres would in virtually every case have a standard centre lease covering service charge to repair and maintain the public areas).

The Law Society Business Lease can be used for office space, warehousing and there is also the option of using the Law Society Business Lease of part, which, as the name suggests is for when a part of a premises is being let (e.g. a floor of a building).

When does a lease need to be registered?

If a lease is 7 years or over in duration, then the lease needs to be registered. This is in the Tenants interest as it will protect their tenancy at the Land Registry.

What does it mean when people say that a Lease is included (or excluded) from the Landlord and Tenant Act 1954?

The Landlord and Tenant Act 1954's main provision is in relation to security of tenure. It was decided that when a business tenancy was entered into, the Tenant should have the automatic right to renew the tenancy at the end of the term. This is on the basis that if a business has built up goodwill by virtue of its location, then the Landlord should not be able to take advantage of the goodwill and hold the Tenant to ransom in subsequent lease negotiation. If however at the start of the lease negotiation process it is decided that a lease should be 'excluded' from the security provisions of the Act, then the Tenant can sign a waiver to give up the right to automatic renewal — if this process is not followed (and correctly) then the lease will automatically be 'included' within the Act and the Tenant will have the automatic right to renew the lease at the end of the term.

What is a lease assignment?

Often, a lease will have been entered into for a long period and if the Tenant then needs to sell the business or needs new premises, they would 'assign' the lease to a new party. Although this process often takes less time than reviewing and negotiating a new lease, the downside is that the lease you are given is already set in stone and cannot be altered (though a deed of variation may sometimes be negotiated).

If I assign a lease will that remove my obligations under it as a Tenant?

In virtually all instances, the Landlord would ask for an Authorised Guarantee Agreement(AGA) before allowing the assignment of the lease. This would mean that should the new tenant not be able to pay the rent or breaches the terms of the lease then the Landlord can seek the rent from the previous tenant.

What is a deed of variation?

A deed of variation is a formal change to the Lease — this is a separate agreement that varies the terms of the lease. There are some concerns over Deeds of Variation in that it could result in a surrender and re-grant situation which the Landlord would not want.

What is a licence to alter?

The lease will usually provide that the tenant must obtain the landlord's consent to make any alterations or additions to the property. The landlord and tenant will usually enter into a Licence to Alter for this purpose.

What is a surrender and re-grant?

A surrender and re-grant is applicable when there are guarantors under a lease or when a lease has been assigned leaving the original tenant as a guarantor. If the lease is materially changed by a deed of variation, a change of how the rent is paid or a change of the demised premises then this could result in the surrender and re-grant which will remove the obligations on the guarantor and leaving the Landlord in a weaker position than before the change. This can be avoided in some instances by the use of a side-letter.

If I was buying a small business in a high street location — would this be straightforward?

Often buying an existing business would cover a number of separate legal acts and can be more costly from a legal standpoint than setting up a new business. This is because you may need: a business purchase agreement — which is a contract to cover the purchase of the goodwill of the business and the fixtures and fittings; the premises are often leased so a lease assignment needs to be performed; there may be employees, requiring a check of their contracts and an indemnity from the seller. The above, from many firms would cost in excess of £3,000. At lease Expert, the team of specialist commercial property Solicitors can often do all this for less than half of this fee.

If we take out a small lease, will we have to move at the end of the tenancy?

Most often, the answer is 'No'. A business lease automatically continues after the expiry of the contractual period until it is brought to an end by either party serving a notice in a prescribed form. The tenant has a statutory right to ask for a new lease and there are only very limited grounds upon which a landlord can regain possession of the premises.

The Estate Agents details say that the property is let for 'A1' use: what does this mean?

The proposed use of any premises — freehold or leasehold — must be authorised under planning permission by the local council. Where there is to be a change of use, planning permission must be obtained. However an application for planning permission does not need to be submitted where the change is within a category or 'class' of The Town and Country Planning (Use Classes) Order 1987. These classes are often adopted in practice and B1 includes, for example, uses as offices which are not primarily open to visiting members of the public. For details on the Town and Country Planning (Use Classes) Order 1987 click here

Is VAT payable on the purchase price?

Generally this will depend upon whether the seller has elected to waive the exemption from Value Added Tax. If so, VAT will be payable in addition to the purchase price although the buyer may be able to reclaim this sum if VAT registered. If in doubt, speak to your accountant.

Is VAT payable on the rent?

This will depend upon whether the landlord has elected to waive the exemption from Value Added Tax. If so, VAT will be payable in addition to the rent although the tenant may be able to reclaim this sum if VAT registered. If in doubt, please speak to your accountant as they are better placed to advise on VAT liability (and more importantly, how to offset it) than your Solicitor.

The Lease states that the Tenant is to repair the premises but surely the Landlord cannot insist the Tenant is responsible for items of disrepair which were present at the date of the Lease?

Liability for repairing the premises depends on the wording of the lease. For example, an obligation to "keep the premises in repair" means the premises must be first put into repair (taking into account the age, character and locality of the premises) and then kept in repair. This could involve the Tenant in repairing damage which occurred prior to the start of the lease. A Tenant wishing to avoid this should seek legal advice as to the wording of the lease and may be advised to have a 'Schedule of Condition' prepared or even photographs taken to record the condition of the property on the day the lease was granted.

What is a rent review clause?

The rent review clause in the lease will provide a mechanism for the rent to be reviewed periodically. Reviews usually occur every five years. Most rent reviews are on an open market 'upwards only' basis. This enables the landlord to benefit from any rental growth since the last review. If the market rent has gone up, the rent will most likely increase. A tenant can, however, negotiate with the landlord to keep any increase to a minimum.

Can the Landlord stop the Tenant selling the lease?

Unless the Landlord specifically restricts a Tenant, the answer is 'No'. Invariably a Lease will include a restriction and the words of the lease are strictly interpreted. Usually any dealings with part of the premises (as opposed to the whole) are prohibited. Often, sub-letting will only be allowed in restrictive circumstances (a Landlord must ensure that if the head-Lease comes to an end, a sub-Tenant's occupation will not be detrimental to the Landlord's interest). A Lease will often prescribe the circumstances in which the Landlord may refuse consent (for example, if the new Tenant is not of equal financial standing).

How much will it cost to acquire a commercial property (additional to the purchase price or rent)?

Apart from your solicitor's fees and VAT, there will be some additional expenses just as there are when buying a home.

There will usually be fees for making enquiries/searches of the local authority, companies house etc. There may registration fees (if a company is entering into a mortgage or if the property is freehold or held on a lease over 21 years). VAT and Stamp Duty may also be payable. Stamp Duty is payable on the purchase of a freehold property at the same rates as domestic property: it is also payable upon premiums paid under leases and on any rent. Unlike a large number of firms, we will get this information for you up-front and give you a fixed price you can usually rely on (we always aim to give a price you can rely on but there are occasions when there is a change to the work required. In these circumstances, we would discuss the change with you immediately).

How is Stamp Duty calculated on rent?

It is based on the average annual rent taken over the length of the term. If future rent cannot be ascertained at the outset (for example, where the rent is to be reviewed in line with the prevailing open market), then such increases are ignored for this purpose. Unless the Landlord has promised not to waive the exemption from VAT at a future date, VAT is added to the average annual rent and Stamp Duty is calculated according to the length of the lease:

• Not more than 7 years or indefinite
  (where rent exceeds £5000 per annum): 1%
• More than 7 years but not more than 35 years: 2%
• More than 35 years but not more than 100 years: 12%
• Over 100 years: 24%

It is however, often easier to use the Stamp Duty Land Tax Lease calculator which can be accessed here

What payments other than rent is a Tenant obliged to make?

The Lease must be read carefully to check what financial commitments are involved. Usually the Tenant is obliged to pay towards the insurance of the building and if the premises form part of a larger building, the Tenant will most likely have to contribute towards the maintenance and running of that building. This latter cost is often collected by way of 'service charge' and should be thoroughly investigated before a Tenant signs a Lease as such a variable cost could drastically affect the profitability of a business.