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John Mitchell on your commercial lease
8:20am Wednesday 5th December 2012 in Business News
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By John Mitchell of Adams & Remers
Make sure your lease is not a noose around your neck.
Business owners who agree to a new lease on their commercial premises outside the Landlord & Tenant Act 1954 are giving up vital protection and the possibility of losing premises which they have occupied for a number of years where customers know where to find them.
A recent matter involving a local business should serve as a warning to other business owners who may be tempted to agree terms for a new lease without taking professional advice.
The business owner had been trading from his business premises for a number of years and allowed the term of his lease, which was protected under the 1954 Act, to expire being unaware of his rights.
He was offered a new lease by the landlord but this was on the basis the new lease would be outside the 1954 Act.
As the business owner’s financial position was a little uncertain, and to help reduce his costs, he initially decided not to take legal advice on the terms offered for the new lease.
Fortunately, he reflected on that decision and sought advice before be signed the new lease although he had verbally agreed terms.
He accepted the advice given not to agree to the new lease offered outside the 1954 Act because of the important rights he would have lost.
It is these rights that many business owners are unaware of especially if, as in this case, they have been trading from the same business premises for a significant number of years.
If you have a lease protected under the 1954 Act, you have certain rights that include; at the end of the contractual term to remain in occupation provided you are trading for business purposes until the landlord either serves notice on you to take a new lease or you serve a notice on your landlord requiring a new lease (in either case on terms to be agreed or determined by the Court) or you give notice to leave.
There is also a right for the tenant to claim statutory compensation (calculated as a multiple of the rateable value depending how long the tenant has been in the premises) if the landlord opposes the new lease on the grounds of reorganising lettings in the building of which the premises form part, demolition or reconstruction of the premises or that the landlord requires the premises for the landlord’s own occupation.
Such compensation would not be payable if the lease is outside the 1954 Act.
The business tenant concerned is now proceeding with a new lease within the 1954 Act and, depending on his financial position at the end of his lease and whether he decides to carry on trading from the premises, he has the option of continuing to occupy the premises and of applying to have a further lease or receiving a compensation payment if the landlord successfully opposes the new lease and decides to take the premises back on one of the grounds mentioned.
The key point any business owner should consider is that a lease is a major contractual agreement and the financial implications of signing up to something you do not fully understand could have hidden financial implications in the future.