Top tips for commercial landlords
Letting commercial premises can be a minefield for unsuspecting landlords, particularly when leases are granted without legal advice being sought first. All too often terms are agreed in principle in advance of instructing a solicitor and it can be very difficult to go back and revisit those terms. Getting things right from the outset can help prevent issues arising later down the line and can ensure that a landlord is better equipped should any problems arise.
1. Know your tenant – a landlord should look into the background of any prospective tenant including their financial position and should consider asking for references from current or previous landlords, trade creditors and/or their bank. If the prospective tenant is a limited company, landlords should check who the directors and shareholders are and consider whether a guarantor may be needed to support the obligations of the corporate tenant. Guarantors are usually sought where a tenant has a weak financial status, is a new business or has minimal or no UK assets.
2. Consider a rent deposit – if there are concerns surrounding a prospective tenant’s financial situation or a guarantor is not available but a landlord wishes to proceed, a rent deposit should be considered. A rent deposit is provided by the tenant to the landlord as security for payment of the rent and the performance of the tenant’s covenants (promises/agreements) in the lease. This provides a landlord with a degree of security as the rent deposit can be withdrawn in agreed circumstances such as when the tenant is in breach of a relevant covenant in the lease (non payment of rent being the primary concern), without the need for costly court proceedings. A rent deposit arrangement is documented in a rent deposit deed which needs to be carefully drafted to ensure that it clearly sets out in what circumstances the landlord can draw against this money and sets out the conditions which must be satisfied for the deposit to be repaid to the tenant.
3. Have a well-drafted lease – while many landlords enter into tenancies without having a lease properly drawn up by a solicitor, having a well-drafted lease can often save money and protect a landlord’s interests in the long run should problems arise. A well-written lease will provide certainty in relation to key aspects such as rent, termination, repairs, use of the premises and will clearly set out the responsibilities of each party under the lease.
4. Think long-term – it is important for a landlord to be clear about their long-term plans for the premises. If a landlord will require the tenant to leave at the end of the lease term or before, then wording is required in the lease and there is a specific procedure to go through before the lease is entered into. As such, seeking legal advice at the outset is crucial to ensure that this is carried out correctly. Failure to do this could result in a tenant having a right to a new lease at the end of the term.
5. Monitor rent – a landlord should keep track of rent payments at all times throughout the term of the lease. If slippage starts to occur this may be a sign of trouble ahead. Landlords should be mindful not to let rent arrears become too large before action is taken and professional advice should be sought as soon as problems begin to arise.
For more information, contact Sean Logue on firstname.lastname@example.org or the commercial property team on 01228 552600 or 01524 548494.