12 December 2014
Happy ever after? How a tenancy agreement should be a fulfilling and lasting relationship
“A tenancy agreement requires just as much commitment and effort as a marriage.” That’s the view of commercial property partner Michael Larcombe, who explains how to ensure a fulfilling and lasting relationship from the start.
A tenancy agreement is a vital part of business property, setting out the rights and obligations between the landlord and tenant, protecting both parties’ property and finance.
I like to use the analogy of a marriage and see a tenancy agreement as a long-term contract which is fine in the beginning, but as time passes there may be implications in the future.
Where marriages and families evolve so too do businesses, and premises which once were ideal may become too small, their location may no longer be ideal, and the agreement too inflexible.
The law is very strict when it comes to leases, which makes them extremely difficult to get out of.
By preparing properly at the start by engaging with a specialist commercial property lawyer – a marriage broker if you like – you can ensure that any agreement is future-proof and capable of adapting to your changing circumstances.
Doing so ensures that both landlords and tenants of business premises know their respective rights and responsibilities and potential bear-traps can be avoided along the way.
Engaging with an expert at the start of the contract can ensure that the best terms are negotiated early on, and possible hazards anticipated in advance.
The cost of the rent will always be at the heart of any agreement, but there are many more issues which need to be identified and agreed, such as:
How much rent-free period can you negotiate to allow you to move in and fit the premises to your specific requirements?
- Is there a service charge, and if so, is there potential for capping or limiting it? For example, it’s important to try to negotiate limitations on your responsibility for repair; well-presented site décor may be masking a multitude of sins that could prove costly later in a tenancy.
Dilapidations are a classic cause of anxiety and over a 20 year lease, a tenant can find themselves paying refurbishment costs which are entirely disproportionate to their lease. A property could, for example, be a listed building with a lead roof that becomes beyond reasonable repair and needs replacing.
A landlord will undoubtedly want to pass those repair costs onto a tenant in order to preserve the value of their investment and although there will be a number of get-outs, the cost of finding them – reactively – will not be insignificant. Proactive advice, on the other hand, is priceless.
Recriminations around “failure to repair” at the end of a term, though common, are best avoided and negotiating a cap on dilapidations is the most sensible approach.
Outside your control
Sometimes disputes can appear to be outside of a tenant’s control – not least in multi-tenanted premises. For example, taking an assignment on premises that already have tenants in occupation of other parts of the building is not uncommon.
However, in some cases, organisations can find themselves indirectly exposed if their agreement stipulates vacant possession of the whole building at the end of the term. In such cases, even parking spaces can present a challenge; in instances where someone has innocently forgotten an imminent lease expiry and parked overnight, a tenant can face legitimate arguments about whether vacant possession has actually been delivered up.
It’s a potential nightmare scenario – but with good, early advice, it need not end in an acrimonious split. Treat your tenancy agreement with the same attention you would a marriage contract; take advice from the outset and you may just avoid a major incident that may have significant consequences on your business.
That way, for better or worse, you can rest assured your business rests on solid foundations.