Landlord and Tenant
Entering into a lease is the first step in renting a commercial property. But what happens when at a later date the tenant wants to:
a) Carry out work at and alter the property?
b) Assign the benefit of the lease to a third party (for example where the tenant wishes to sell their business, or expand into larger premises)?
c) Vary the lease?
Alterations
There is usually scope for the tenant to make changes to the property, but this must be done in accordance with the terms of the lease.
Lease covenants
The extent to which alterations can be made is usually governed by the lease:
- Absolute covenants prohibit any alterations to the property
- Qualified covenants allow alterations to be carried out, subject to the landlord’s consent, possibly with the additional proviso that
- The landlord’s consent cannot be unreasonably withheld.
What are the key considerations?
These are dependent upon the nature of the work to be done, but in the majority of cases specific legal documents, such as a Licence for Alterations, will be required.
This document sets out the specific changes the tenant is authorised to make under the lease and when, and benefits both parties because there is a clear record of any changes made, thereby reducing the possibility of disputes later on.
N.B. Even when the landlord’s consent is successfully obtained, it is important to be aware that the landlord is likely to require the property to be reinstated at the end of the lease to the same state and condition it was in at the start of the lease.
Ensuring compliance with planning laws and regulations is also vital prior to altering the property.
Assignments
How do you assign?
Assignment provisions are usually contained within the lease and a Licence to Assign is likely to be required. This document confirms the landlord gives consent to the transfer of the leasehold title, and includes any conditions attached to that consent (for example, the landlord may require a guarantor where the incoming tenant, or assignee, is considered to be of a lower financial standing, or the landlord may require the tenant to pay the landlord’s legal costs).
Deeds of Variation
During the lease, it may become apparent to either party that one or more of the terms should be changed without entering into an entirely new lease.
This may concern the payment terms, the duration of the lease or any of the obligations of the parties. Whatever it may be, care needs to be taken as certain types of variation can have the effect of terminating the lease and leading to the grant of a new lease, which is unlikely to be what the parties intend.
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