NAVIGATING CONVEYANCING'S SNAGS

NAVIGATING CONVEYANCING'S SNAGS

Zoe Smith, Head of Commercial Property at ORJ, looks at three of the potential pitfalls of commercial conveyancing.

Contracting out

We are seeing more landlords ‘contracting out’ to give them greater flexibility over who occupies their commercial property and for how long.

Under the Landlord and Tenant Act 1954 (1954 Act), tenants who lease a commercial property usually benefit from statutory rights to renew their lease at the end of the lease term. A landlord can only refuse in limited circumstances set out by the Act.

That is unless 'contracting out' is put in place when the lease is first agreed. This is where the landlord and tenant reach an agreement to exclude the statutory rights under the 1954 Act. If contracting out is in place, at the end of the term the landlord may choose to renegotiate on price, find a new tenant or take ownership of the property themselves.

Contracting out is usually the decision of the landlord as it gives them greater flexibility as to how long they lease their property. It also provides certainty for both landlord and tenant and means the landlord does not need to remember to serve any notices on the tenant in order for them to be legally required to leave at the end of the lease.

Both landlords and tenants should seek expert advice when they are agreeing a lease – particularly when contracting out is involv involved. We can talk you through the pros and cons and help with agreeing contracts.

Repair Obligations

It’s vitally important that tenants are aware of their repair obligations when they enter into a new lease. Failure to do so could cost tens of thousands of pounds.

Conventional commercial leases require the tenant to “keep the property in good and substantial repair”. This wording, though, can be vague and open to interpretation and can be based on several factors such as the age of the property, its character and where it is located. It is therefore important to look at the condition of the property and consider the proposed extent of the repairing obligation. For example, what condition is the roof in? Many leases are full repair leases meaning that the tenant is responsible for repairing and maintaining the full extent of the property including the roof; if the roof is not in good condition then you as the tenant could find yourselves having to pay out a lot of money to repair it.

I'd therefore urge caution, particularly if the building is old or even listed. A tenant could find themselves being served with a Schedule of Dilapidation and being required to put the property back into good repair - even if it was in disrepair at the start of the lease.

I would recommend tenants insist on a Schedule of Condition, which accurately records the state and condition of the property with photographs and descriptions at the time of the lease being agreed. Make sure that the lease sets out exactly what structures fall within the responsibility of the landlord, and what is the responsibility of the tenant.

If the property is fairly dilapidated from the outset, tenants certainly shouldn't agree to enter into a full repair obligation. Don't take chances - speak to the experts before putting pen to paper.

Service charges

Service charges are paid by the tenant to the landlord for the services the landlord is obliged to provide under the terms of the lease, which can include maintenance and repair and management costs. Charges can vary from year-to-year depending on the costs the landlord incurs.

Service charges can go up or down without any limit - but it is only recoverable if it is reasonable. A landlord can be asked to prove expenditure and a leaseholder can challenge the reasonableness of the charge.

Due to the ambiguous nature of what is reasonable, disputes are inevitable and common. We have good experience of working with both landlords and tenants when disagreements arise. It is important for both sides to act properly and to record all correspondence.

ORJ is a leading expert in commercial conveyancing. Speak to us today to ensure your rights are protected – whether you are a landlord or a tenant. 

Zoe Smith