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Landlord and Tenant

The relationship shared by a tenant and a landlord can be quite complex, especially if the landlord is liable to fulfil certain needs, before the completion of the lease. Many a times problems arise right at the beginning of making a transaction, if both the parties involved in the lease fail to understand the terms thoroughly, which they have agreed upon.

What do you mean by a lease?
The lease is an agreement that administers the relationship shared by the tenant and the landlord. Both the parties enter in a lease after exchanging an ‘Agreement for Lease’. However, there is no need for an Agreement for Lease at all times and the Landlord and Tenant can enter the lease soon after agreeing to certain terms and conditions.

What do you mean by covenants?
In simple terms, a covenant can be explained as a promise to do or to refrain from doing something. For example, covenant to undertake the repair cost or to pay due rent on time.

What do you mean by “Heads of Terms”?
‘Head of Terms’ are those terms which are generally provided by property agents, stating exactly what both the parties involved in a lease have agreed upon. It is usually prepared by the letting agents hired by the landlord, which is usually a firm of professional surveyors, and include the brief detail of all the terms and conditions of the proposed transaction. Many a times, tenants consider the Heads of Terms as the actual contract. However, both these documents are different.
The Heads of Terms list usually include details of the property, the parties to the lease, length of lease term, the initial rent, and who is responsible for buildings insurance and repair. In certain cases, both the parties may have their individual surveyor to perform negotiations on the terms. In case of small business enterprises, which may not have their own surveyor, they should agree to the terms and make a commitment only after understanding the terms thoroughly. Let’s take an example of who is responsible for getting the repairing work of the property done. Usually the lease propose a “full repair liability”, which means that the tenant will be responsible for getting all the repair works done in the entire building, whether it be on the roof, the foundations or the structural parts, irrespective of any defects that may already be existing in the building. This is not an appropriate term for those going for a short lease.

Does agreeing to the Heads of Terms equivalent to a binding contract?
No. The Heads of Terms is not equivalent to a binding contract.  Both the parties enter into a binding contract only when they sign a written agreement, which is dated as well. It is usually known as the Lease or an Agreement for Lease. Before signing a contract, the tenants need to ensure that there is no such term in the lease, which will lead to unnecessary expenditure in the future. A single party cannot proceed with the lease, without getting approval from the other.

What do you mean by “condition precedents”?
“Condition precedents” means there are certain conditions that have to be fulfilled before the completion of the lease.
It can be anything related to the planning regulations, especially if the property was being used for some purpose other than what is proposed. For example, under planning regulations the permitted use for a retail shop is use class A1. If the same property is now proposed to be used as a licensed restaurant, than it will fall within use class A3. Therefore the landlord is responsible for getting the planning approval changed. In such cases it should be noted that, one has to consider the requirements of licensing laws as well. The lease can be completed only after the condition precedent is achieved.

What happens after one agrees to the terms?
After the terms are agreed, usually the landlord’s solicitor issues a draft lease and paperwork to the tenant’s solicitor which reflects the Heads of Terms. It is the tenant’s solicitor’s duty to ensure that the documentation reflects exactly what was agreed by both the parties.

Once the paperwork is issued, how long does it take to complete the lease?
The time required depends on the complexity of the transaction and at times also on the efficiency of the other party and their solicitor. The negotiations can be done and the lease can be complete within 2 to 4 weeks, if there are no pre-conditions existing.
The process takes longer in case the landlord has to fulfil certain planning conditions.

What can be done if a business venture fails to work?
Usually, the contractual promises continue to be performed till the end of the lease term.
There may be options of transferring your lease to a new tenant, but to do this, you first need to seek permission from the Landlord and at the same time have to guarantee the new tenant. In such a case the landlord can claim the new tenant’s covenants from you.

Does the building come with any guarantee?
Buildings which are more than 10 years old usually do not come with any guarantee, unless the parties have agreed on it.
In case of newly constructed buildings the landlord might provide the tenant with defects insurance, or collateral warranties may be available from the designer of the premises, for instance, from the architect or the builder.

Can the rent be increased in the middle of the lease term?
This again depends on what is agreed by both the parties initially. Usually, rent can be increased at the mid-point of the lease term, say in the third year if you are on a 6-year lease. Almost all the leases include rent review on an upward-only basis, which means, there is no chance for the rent to decrease, but to increase.

 

 

 

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