A Standard Lease - There is no such thing!

Many owners of commercial property buy commercial property to create an income from letting the premises out. When the owner has found a tenant for the property the owner will often go to a solicitor and ask for a "standard lease" or a "full repairing and insuring lease" (commonly known as a "FRI lease"). Over the years there has been some move towards commonality of clauses but, there is certainly no such thing as a standard lease. Inevitably almost all new leases will require some level of negotiation, it is therefore very important that both parties to the lease seek independent legal advice.

What is a lease? 

Briefly a lease is a contract between an owner of land and another person, the tenant, allowing them to use and possess the land, or part of it, for a set period of time. The lease sets out the rights the tenant has, how much rent they must pay and what they can and can’t do at the property. 

Lease drafting pitfalls

There are precedent leases available online and these can be useful in certain circumstances. These precedent leases allow you to insert the relevant terms agreed between the landlord and the tenant, such as the rent, term etc. However, it is easy to create unintentional consequences if the wrong information is inserted into these precedent leases and may not reflect the agreement between the parties. Potential pitfalls when drafting leases are: 

• The Premises – It is extremely important to ensure that the property being let to the tenant is properly described. Provisions in the lease such as the repair obligations will most likely rely on a full and accurate description of the property to be repaired. Who will repair the windows, who will clean the windows? Who will maintain the external walls? Care needs to be taken so no parts of the property are missed. 
• Term – A lease must have a fixed term, you cannot have a ‘rolling term’ in a lease. A tenancy without a fixed term is not a “lease”. 
• Security of Tenure – A commercial lease will automatically fall within the provisions of the Landlord and Tenant Act 1954 (LTA 1954). The LTA 1954 gives the tenant security of tenure. What this means is that if the tenant wants to renew the lease at the end of the term, but the landlord does not want to renew the lease, the landlord may only refuse the renewal for one or more of the reasons set out in the act. Where a lease is not renewed, compensation may be payable by the landlord to the tenant. If the parties want the lease to be ‘outside the act’, then certain steps must be taken for this to happen. 
• Repair – When leases are being granted the tenant’s repair obligations should be made clear. What is the tenant responsible for repairing and to what standard? Where a property is in disrepair at the start of a lease a tenant may be required to put the property into good repair to avoid falling foul of the lease. A tenant may unknowingly sign up to a lease and immediately be responsible for carrying out works to a property to bring it into a good state of repair. 
• Insurance – Common insurance must be considered and dealt with in the lease. The lease must sufficiently deal with who is to make any repairs not covered by insurance, and whether, or not, rent be suspended whilst the repairs are being carried out. A tenant does not want to be in a position where they are paying rent for a property they are unable to use or access following damage. 
• Service charge – Where there are service charge provisions in a lease, the wording of the service charges clauses needs to be considered carefully. Does the lease allow the landlord to make ‘improvements’ to the building and not just repairs. If so, the tenant may be responsible for all or a share of the ‘improvement’ works which may go well beyond the usual maintenance and repair of a building. If the lease is a short-term lease is there a cap on the amount of service charge that can be charged. The tenant of a two year lease is unlikely to want to pick up the bill to re-do the roof of the premises.