Commercial Tenant victim support

 
After examining a report named the 2002 monitoring code of practise for commercial leases the government commenced consultation on issues to do with commercial tenancies.  Tenants were still subject to rent provisions and other restrictions. Like so many tenancies in the U.K people argue commercial leases are heavily favoured for a landlord.

In 2004 the government moved to regulate the commercial market. This was mainly in response to a commercial property boom which recovered in 2001. This is an Industry now worth 450 million pounds.

For purposes of this article I am referring to commercial surveys carried out for a bar in Fulham London and an Industrial; unit in Leamington Spa. I am an assistant to a chartered surveyor at firstssociated.co.uk. My experiences in particular at the industrial unit survey show how unfair commercial leases can be on new occupiers of buildings.
Our clients were buying the building outright but were involved in dilapidations which concerns leaseholds too.

There are certain things meaning that help leases weigh more in a landlords favour.

Exclusion

They have exclusion of liability for the state of property at the commencement of the lease. The tenants are given full repairs insurance and responsibility for keeping the building running at the start of a lease. Further they can’t leave the lease if it’s irreparable. In the Leamington survey the old lessees left over five thousand pounds worth of damage. They had given a time scale to complete works and repairs labelled in the lease. Such things include deterioration, leaks, fire and health and safety depending on what is in the deeds.

Commercial tenant maintenance charges

Lease Service or charges regarding the maintenance of the building can be transferred to other occupiers if any or just the one tenant of the building. For example at Latin fusion (bar survey), There were occupiers in flats above the bar who would have too pay a share of the maintenance charge. Lease of a part of the building is generally better. This would mean our client (tenant of the bar) would need to pay only a fifty percent share for exterior and interior defects under insurance taken out by landlord. One such example was the roof which was causing leaks at the top floor flat. We advised the occupant of the top floor that he could enquire about this with us after the survey at any time.  A survey report could advise on what part a lessee is responsible for.

Extortionate rent reviews

Rent Reviews are on average every three years for a fifteen year lease. What in effect happens is that prices of rents increase every time a property is reviewed this is the subject of many disputes. The problem with these is that they do not take account of what improvements a tenant makes to a property.  A tenant could be paying 250000 rent per year on a building with a rateable value of 1900.  In effect you could be paying over and above what the building is worth and facing at every rent review an increase by say a thousand pounds. A chartered surveyor could assist by determining the real value of the rent using comparable values. As a tenant you could if you wanted contest this in a court of law. To avoid the pain of this, the surveyor could simply negotiate the rent before the commencement of the lease. This would allow him /she to take account of any improvements made to the property and in a sense is fairer on the new tenant as they get a fairer rent to pay.

Landlord and tenant act 1954.

This has provided some help for tenants in that it allows tenants to leave a tenancy providing they have abided by all terms of the lease. For example paying the rent on time and not making any damage or be in breach of the lease.

Break Clauses

In order to leave a lease on a commercial which are quite lengthy a break clause could be contained. These occur every so often in a lease and allow a tenant to leave the contract.
The British property federation argues that only a 1/3 of all office leases contain break clauses.

Dilapidations and disputes

At the end of a commercial lease any repairs needed if covered in the lease are your responsibility as the lessee. In the Leamington Spa survey the chartered survey visited two times to list and check on progress of all defects he highlighted on the building. We found that progress had not been made. This concerned dilapidations with the old tenants. They had given us a guideline of August by which point they would make sure of the repairs they are accountable for. The old tenant could argue in this case that the landlord is not fair to issue all these repairs on them as it really does depend on what is covered in the lease and schedule of condition. For this survey we could not get a hold of a copy of either which added to complications. In essence who was responsible for what?
Our new occupiers do not where they stand. The outcome was that they helped us construct a list on virtually everything they could spot that was wrong without knowing if this was covered in the lease. This was well over 5000 pound worth of damage. To be realistic there was no way this figure can be covered. The length of dilapidations were also unfair on the occupier as it can take months before repairs are enforced in which time a business loses costs. In our case the new occupiers had nine months still left on the lease and were buying outright meaning this did not apply to them.

It is normal practise for old tenants to leave the premises in the way they were received and not to make any enhancements covered by the landlord and tenant act of 1954. However it really does depend on the lease.

A schedule of condition

A chartered surveyor can draw up a schedule of condition at a survey. This is drawn up at the expiry of a lease. At one particular bar in Fulham he wrote this up without even being asked as an extra service. This covered all paintwork deterioration and problems or defects which he had experienced. This would be in accordance with the lease and allow the freeholder to claim against the lease from past tenants. This would help a solicitor and surveyor negotiating on new terms for a new lease. He could also like in the Leamington survey to negotiate on dilapidations. It is possible to negotiate on this between parties outside court or with the assistance of an arbitrator in court.

Length of lease

Generally leases can be long even up to 999 years. New leases have been shortened to counter this. The average length of a new lease in the U.K is 8 years, 91% of leases are for 15 years of less now. This rule is slightly fairer. The longer you stay in a lease the more complicated it can become. The Leamington survey was for an old tenant who had been in the building was for over twenty years. This was an old style lease and there was a lot of damage to be taken account of. Such examples include lift maintenance, an asbestos roof survey, leaks and fire safety. The longer a lease the harder it can be to break out since you are always obligated to a landlord for repairs and can face getting tied in.  Reforms of stamp duty mean for longer leases the length of leases has now been shortened. A good surveyor would help negotiate the terms on the length at rent reviews.

Other obligations of the tenant.

Other requirements that fall on the tenant are for health and safety, fire risk and asbestos. The roof was encapsulated at Leamington.  Many Industrial units have this as a common problem on their large roofs as they were built during the 60’s. The surveyor mentioned an encapsulated roof provided a premium in the future sale of the unit for our client.
This could have been something the old lessee paid for depending on the lease.

A lease is an enforceable agreement containing terms that the landlord and you the tenant are bound by. Once it is signed you are bound by the terms so before this is done it is best to be advised by a chartered surveyor or solicitor. Choose one which has experience of handling commercial negotiations. At firstassociated.co.uk we cover residential and commercial surveys. The chartered surveyor I work with specialises in commercial surveys. If you want a fairer lease and a fairer tenancy we can provide a consultation.

A commercial survey what to ask for.

A chartered surveyor can help you bargain over terms. The length of the lease is now becoming an important issue. Generally a shorter lease is termed preferable as it safeguards risk to you.  He /she will also be able to outline what repairs are needed and assist on negotiating the terms of your rent by strategically reviewing the property value. They can offer negotiation on disputes and if the matter cannot be resolved they can attend courts as an expert witness. Service charges can be advised upon through careful interpretation of the lease. A surveyor is best to be consulted in association with a lawyer who can advise you on terms of a lease.

 In 2005 the government decided not to move in favour against rent reviews, to this day one of the unfair terms of the leases. The issue remains that because of its nature it is quite a tough contract for tenants to sign.

Hammerson rings bells over city property – The Times.
www.rics.org
landlordzone.co.uk
Firstassociated.co.uk Sydenham industrial survey
Times online
British property federation