Leasing Commercial Premises

Transcription

1 Leasing Commercial Premises We have prepared these notes for individuals, firms and companies who are thinking of leasing business premises. They are for general guidance only and do not contain specific information relevant to a particular transaction. The Legal Process 1. The draft lease is prepared by the landlord s solicitors. When we receive it we will normally report to you on its terms and suggest to you any amendments we think should be made to it. We will then return it to the landlord s solicitors. Once it is finally agreed the landlord s solicitors will produce two copies, one for signature by the landlord and one for signature by you as tenant. On completion the two parts are exchanged. 2. Sometimes completion of a lease is conditional upon, for example, the landlord or tenant completing works to the building. In such circumstances an agreement for lease will be exchanged, with the lease being formally completed once the works have been completed. The form of the lease needs to be agreed before the agreement for lease is exchanged. 3. When we receive the draft lease we will raise with the landlord s solicitors what are known as preliminary enquiries about the property. Unless you instruct us to the contrary we will also make a local search to check, for example, the planning history of the property, that it is not affected by road proposals and that there are no outstanding statutory notices relating to, for example, breaches of the Building Regulations or the Planning Acts. We will also usually carry out other searches relating to the property, including an environmental search, to find out whether there are any particular issues that affect the property and for which you may be responsible if you become the tenant. 4. If you are not being granted a new lease of the property but instead are taking an assignment of an existing lease or the existing tenant is proposing to underlet the property to you, the landlord s consent to the transaction will be required in a form of either a licence to assign or a licence to underlet. Before issuing the licence the landlord will require to see references on you and his solicitor will normally ask for what is known as an undertaking as to costs from the current tenant s solicitors. An undertaking as to costs is confirmation that the landlord s legal costs will be paid irrespective of whether or not the transaction proceeds to completion. In order for such an undertaking to be given the existing tenant has to put his solicitor in funds for the costs undertaking and if this is in the form of a personal cheque, the cheque will have to be cleared. 5. The landlord may as a condition of granting a lease or issuing his licence to assign require a rent deposit to be paid to him or his solicitors and a rent deposit deed will have to be entered into. A rent deposit is a sum payable by a new tenant to the landlord or his solicitors as security for payment of the rent and compliance with the tenant s other obligations under the lease (including to repair the property). The deposit is usually the equivalent of 3 or 6 months rent.

2 6. We will advise you if stamp duty land tax ( SDLT ) is payable on the lease (if you are taking a new lease) or on the assignment of an existing lease. In order to enable us to prepare the SDLT return for you, you will need to advise us of your National Insurance number and VAT number (if you have one) or (if the lease is being taken in the name of your company) the company s tax number and VAT number. It is important that you let us have this information as soon as possible to avoid any delay in completing the SDLT return. 7. If SDLT is payable then the SDLT return will have to be filed and the payment made within 30 days of the effective date of the transaction (which is normally the grant of the lease or completion of the assignment but can be earlier) to avoid a penalty payment and interest being charged by Her Majesty s Revenue and Customs ( HMRC ). 8. You need to be aware that in certain circumstances there is an obligation to submit a further SDLT Return and pay additional SDLT during the period of the lease. The rules are complex but in summary: 8.1 If the rent is increased during the first 5 years of the lease period (calculated from the later of the term commencement date and the date of completion of the lease) then you have to make a recalculation of the SDLT and submit a new return and pay any additional duty due within 30 days from the earlier of (a) the end of the fifth year of the lease period and (b) the date on which the rent for the first 5 years becomes certain. If you fail to do this then there is a penalty payment due to HMRC and possibly interest. This rule applies to both open market rents, stepped rents and turnover rents and also index linked rents unless the index linking is simply geared to increases in the retail prices index. There is also an exception if the rent review is not more than 3 months before the end of the first 5 year period of the lease. 8.2 If your lease is varied after the first 5 years then again there is a potential liability for further SDLT When your lease comes to an end, if you remain in occupation under the provisions of the Landlord and Tenant Act 1954 pending the grant of a new lease then this will result in the need for a further calculation for SDLT purposes. If further SDLT is due you must submit a return and pay the additional SDLT The above is simply designed to put you on notice of the fact that you may need to file an SDLT return and pay additional SDLT following completion of your lease. The responsibility for making a return and paying any additional SDLT is yours. If your rent increases during the period of your lease or if there is a variation of your lease or if you remain in occupation of the property following the end of the lease, then you should seek professional advice as to whether or not a new SDLT return has to be filed and further SDLT paid. 9. If the lease is for more than 7 years it will have to be registered at the Land Registry and the plans will have to satisfy the Land Registry requirements. We will advise you of the Land Registry fee and we will lodge the application on your behalf following completion of the lease.

3 Leases of 7 years or less generally cannot be registered in their own right but if the landlord s title is registered and the lease grants rights over, for example, common parts of a building, a note of those rights should usually be registered at the Land Registry. Points for you to consider 1. Business leases have the benefit of what is known as security of tenure under the Landlord and Tenant Act This means that if the lease satisfies the requirements of the Act, the tenant has a statutory right to renew the lease and the landlord can only oppose renewal on certain specified statutory grounds. Sometimes landlords require a new lease to be excluded from the provisions of the Act so as to ensure that they can get vacant possession at the end of the lease. 2. If you are taking what is known as a full repairing lease where you are either responsible for the repair of the whole of the building (including the structure and exterior) or the landlord carries out external/structural repairs but can recover the costs from the tenant, you should consider having the building surveyed before you sign the lease so that you can ascertain your likely level of expenditure on repairs. If you are taking a lease of part only of a building, for example, a floor in an office building or a unit in a shopping centre, the landlord will probably be responsible for repairing the structure, exterior and common parts but a proportionate part of the costs will be passed onto you through a service charge. As part of the preliminary enquiry process we will ask for copies of past year s service charge accounts together with a copy of the current service charge budget so that you can have an indication of what the likely level of expenditure will be. 3. If you are taking an assignment of an existing lease or a new underlease then the landlord will want to see references on you before he will issue his licence to assign or underlet. To avoid delays you need to get these organised as soon as possible. 4. Nearly all leases contain restrictions on what works tenants can carry out to the premises. If you want to carry out fitting out works you will need to get these approved by the landlord. This is something we can deal with for you through the landlord s solicitors but you will need to let us have a specification and a plan of the works so that we can submit these to the landlord s solicitors for approval. If the landlord approves the details of your works, it will require you to enter into a licence for alterations with it before you carry out the works. The landlord s solicitors will normally ask for an undertaking as to their costs in dealing with the licence for alterations and we will need to be put in funds if we are required to give such undertaking on your behalf. 5. Business leases normally provide for the tenant to comply with statutory requirements relating to the premises. These include: 5.1 Disability Discrimination Act

4 The Disability Discrimination Act which conferred new duties on service providers from October If a physical feature of the demised premises makes it impossible, or reasonably difficult, for a disabled person to make use of a service, then the service provider must take such steps as are reasonable in all the circumstances of the case for them to take. This could be to either remove a feature, alter it, or to provide a way of avoiding it or providing an alternative way of making the service accessible. In the context of a café, this may mean the widening of doors for wheelchair access, and the provision of accessible tables, toilets and other facilities. You should therefore bear this in mind when inspecting the premises or when you commission a survey. 5.2 Control of Asbestos at Work Regulations 2002 All employers have a duty to protect staff from exposure to asbestos. However, above and beyond this duty the 2002 Regulations also introduced an obligation to manage asbestos risk in non domestic premises. Areas used solely as domestic dwellings are exempt but common parts of those dwellings are covered. The obligation to manage asbestos is placed on the duty holders who must: 1. Assess whether asbestos is present in any buildings for which they are responsible. This can be done by having an asbestos survey carried out at the property. 2. Assess the risk from the asbestos. Again, the survey will identify the risks involved. 3. Put in place written action plans and systems to manage the risk this may, but need not necessarily, include removal of the asbestos. The plan needs to be reviewed and implemented. 4. Information on the location and condition of the asbestos needs to be given to anyone who could come into contact with the asbestos e.g. plumbers, electricians and other contractors. The duty holder is usually the owner, occupier or manager of the building. In other words, it is any person who is responsible for the maintenance and repair of the premises. It is a criminal offence not to manage asbestos and maintain a proper management plan, punishable by an unlimited fine and up to 2 years imprisonment. We will ask in preliminary enquiries whether or not there is an existing asbestos survey for the property. 5.3 The Smoke Free (Premises and Enforcement) Regulations 2006 The Smoke Free (Premises and Enforcement) Regulations 2006 which came into force on 1 July In summary the regulations impact duties to: display 'no smoking' signs, take reasonable steps to ensure that staff, customers/members and visitors are aware that premises and

5 vehicles are legally required to be smoke free, ensure that no one smokes in smoke free premises or vehicles. Failure to adhere to the regulations can lead to a fine. 5.4 The Regulatory Reform (Fire Safety) Order 2005 The Regulatory Reform (Fire Safety) Order 2005 which affects all non domestic premises in England and Wales came into force on 1 October The new rules do not provide for fire certificates. Instead, it requires the responsible person to carry out risk assessments and to continuously assess and monitor the fire risk. More information can be obtained from the following website: Occupiers of commercial premises are required by law to have and act upon a fire risk assessment. In some cases this may involve considerable expense. It is therefore important to satisfy yourself before completion that you are happy with the current state of the premises and the likely expenditure necessary to ensure that it falls within acceptable risk levels. Expenses may involve: 1. Removal / installation of new fire doors 2. PAT testing 3. Electrical testing and changes necessary to the electrical installation at the property 4. Installation of emergency lighting and fire alarms. Please note that it is a criminal offence not to have a risk assessment. Failure to act on the findings of a risk assessment is also a criminal offence and both are punishable by up to 2 years imprisonment. The landlord s buildings insurance may also be vitiated by the fact that a tenant does not have a risk assessment for the premises. Should the premises or building be destroyed by a fire, your landlord will look to you to reinstate the building. It is therefore extremely important for you to put in hand the necessary assessment (or update the existing agreement if there is one and we will ask in preliminary enquiries whether there is an existing agreement) as soon as possible after completion.

6 5.5 Energy Performance Certificates ( EPCs ) EPCs are required when a commercial building is leased out or the lease is assigned or the premises are sublet. From April 2018, the Government has proposed that it will be unlawful to let properties with an EPC rating of F or G (the lowest grades) unless works are first carried out to improve the energy efficiency of the premises. If you have concerns about whether the premises in their current state comply with statutory requirements in the light of your proposed use of the premises, then you may need to take specialist advice from a building surveyor. Disclaimer The content of this note is based on legislation in operation at the time of publication and is for general guidance which may subsequently change. While every care has been taken in its production, no responsibility can be accepted for any action undertaken or refrained from as a consequence of this note. Longmores, its partners and employees accept no responsibility whatsoever for any action undertaken or refrained from as a result of the information contained herein.