Member Article

Commercial tenants need to better understand their lease agreements, warns Scottish law firm, Austin Lafferty

Glasgow-based Austin Lafferty Solicitors is warning businesses not to rush into a new commercial lease agreement without fully understanding the small print. The law firm believes that with uncertainties remaining this winter over Covid-19 and flexible working being the new norm, many business owners in Scotland will be assessing whether their current premises still suit their commercial needs.

Austin Lafferty, Director, Austin Lafferty Solictors said: “Some specific business types may have seen rapid growth during the pandemic and could now require larger premises, but conversely there will also be businesses whose employees are working from home with little ongoing requirement for a permanent location.

“Whether upscaling or downsizing, most business owners will have to get their head around a commercial lease agreement at some point. However, unlike a residential lease, in a commercial lease, nearly all of the responsibility lies with the tenant which means the tenant or business owner should not enter into any agreement without fully understanding what it is they are signing up to.”

Although leases can vary, Austin Lafferty Solicitors believes there are five key areas which prospective tenants should be aware of before entering into a new commercial lease agreement:

Building survey A building survey will not only confirm that the rent being demanded by the landlord is fair, but it will also highlight any defects in the premises themselves. This pre-possession survey is a tenant’s best assistance or defence in seeking to negotiate a limitation on the dilapidations (a list of repairs) because when the lease comes to an end it will be the tenant’s responsibility to remedy all defects and leave the premises in good condition, regardless of the repair when they took it over.

Photographic schedule of condition As well as the survey, it is often worth adding a photographic schedule of condition to the lease. This set of images acts as a visual record of the state of the premises before the lease starts. The tenant’s obligation is thus limited to returning the premises to the landlord at the end of the lease in no worse condition than shown in the schedule of condition.

Schedule of dilapidations At the end of any lease, a landlord issues a schedule of dilapidations which the tenant is expected to complete.The tenant can attempt in advance – i.e. before signing the lease - to limit the works to be done in the future, but only if they have a schedule of condition. If they did not undertake a survey, they take the risk that the landlord may deny that there were any defects or disrepair when they took over, and the tenant and the tenant alone will have to pay for the work.

Early termination clause Once established, neither side can end a commercial lease before the agreed time frame without the other’s consent. An early termination or break option can be negotiated but if the tenant is in breach of the lease in any way (such as paying the rent a few days late), the notice is ineffective and the tenant is legally bound to stay in the lease to the original end.

Tacit relocation If no termination notice is served coming up to the end of the lease (or it is served in the wrong manner or to the wrong party), it will continue under what is known as ‘tacit relocation’ for a period of one year. If the lease contains a provision stating a specific period of notice for termination, then err on the safe side and serve whichever is the longer period of notice between the lease provision and the statutory minimum to ensure the business can get out when it needs to.

Austin Lafferty continued: “Many tenants shy away from seeking legal advice at the start of a lease agreement but then end up paying a great deal more to the landlord in repairs to exit the premises. In the excitement of finding a new location for a business, it’s vitally important that the tenant takes a cautious approach to any new commercial lease.”

This was posted in Bdaily's Members' News section by John Roberts .

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