Leases, Cutting Through The Jargon - Commercial

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Home > Commercial > Leases - Cutting Through The Jargon

Leases: Cutting through the Jargon

Leases can be lengthy documents with lots of expressions and jargon which will be new to many people, making the documents difficult to understand. However a little bit of information will help you cut through the jargon and make things much clearer:

Who is the Landlord? - This is the person who owns the property and is letting it to the other party. They are sometimes called the Lessor.
Who is the Tenant? - The person to whom the Lease is being granted. They are sometimes called the Lessee.
Rent - This is the amount that the Landlord charges the Tenant on an annual basis for using the premises. This is usually paid either quarterly or monthly.
Term - This is the length of time the Lease is granted to the Tenant.
Rent Review - The way in which the rent can be increased during the Term. How often the rent is reviewed is dependent upon negotiations between the parties but is often either 3 or 5 years, depending upon the length of the Term. Commercial Leases usually have a rent review based upon the open market rent whereby the rent is increased to the amount at which the Landlord could let the premises on that date. Some Leases are reviewed in accordance with the Retail Price Index so that rent is increased in accordance with inflation.
Repair Obligations - The Tenant is usually responsible for repairing the premises throughout the duration of the Term. Some Leases have a full repairing obligation (sometimes called a full repairing and insuring Lease (FRI)). Such Leases require the Tenant to keep the premises to a very high standard of condition. It is important to check whether the repair obligation includes structural parts of the property. An internal repairing Lease requires the Tenant to repair the internal surfaces of the premises such as ceilings, plaster work and floor coverings. In these circumstances, the Landlord is usually responsible for maintaining the structural parts but may charge the Tenant part of the cost of such maintenance through a service charge.
Tenants Covenants - These are the restrictions and obligations upon the Tenant which are imposed by the Landlord. These will form the majority of the Lease.
Landlords Covenants - These are the obligations that the Landlord owe to the Tenant. This will include the covenant for quiet enjoyment which requires the Landlord to leave the Tenant to get on with their business. The Landlord usually covenants to insure the building but often has very few other covenants.
Break Clause - A clause within the Lease which enables one party to bring the Lease to an end early. The clauses are specific as to whether the Landlord or the Tenant is the person that can exercise them and is very much a matter of negotiation.
Rent Free Period - With a new Lease, a Tenant may negotiate with the Landlord for a Rent Free Period whereby they do not have to pay the rent for a certain number of months at the beginning of the Term.
Landlord & Tenant Act - The Landlord and Tenant Act 1954 states that Tenants of business premises have a right to automatically renew their Lease at the end of the Term unless the Landlord can raise specific grounds of refusal. The Landlord and Tenant Act can be excluded from the Lease if agreed in advance between the parties. The Landlord then has to serve a notice on the Tenant confirming that the Act and its protection has been excluded and the Tenant then makes a Declaration confirming that he accepts this.