Break Clauses - use them dont ignore them

In a tenants market it is foolish for a tenant of commercial premises to not have a break clause incorporated in a new medium or long term lease. I recently heard of a retail tenant who signed up to a ten year Full Repairing and Insuring lease with a personal guarantee given on the lease by the owner of the business.

The business went into liquidation after a very short period of time and the landlord naturally came after the business owner for the rent on the basis of the personal guarantee. Now I don’t know many people who can afford to pay out £18,000 a year for the rest of a lease on a building they don’t want to or can’t occupy. Don’t forget that as well the nice Local Authority only allow six months empty rates allowance so he even had to pay the business rates.

A break clause in the lease after perhaps 3 years would have allowed the business to see if the premises suited them. After three years the owner or business could have given notice to terminate the lease under the break clause if the building was too small, too big or it was simply in the wrong location for their business.

In the situation above the failure to negotiate the lease terms properly may ultimately see the beleaguered former tenant go into personal bankruptcy. A sad end for the business owners dreams. All caused by not seeking the proper advice from a Chartered Surveyor or a good solicitor before entering into his lease.

Assigned Leases - beware

Negotiate hard when taking over an existing lease

I came across a recent case recently of a naïve shopkeeper taking on a lease of the shop he had managed for a national retailer. In the process he failed to take proper and professional advice. The National retailer had failed to maintain the building during the period of the lease and sneakily dumped the lease onto the shop manager by assigning him the lease with just a few years left to run.

Often an assignee doesn’t realise that when they take on an assigned lease that they are taking on the repairing liabilities for the whole of the lease period not just the period left which they have the benefit of. If you take an assignment of a lease with just a few years left to run then as the new tenant you must negotiate a dilapidations settlement with the outgoing tenant. Otherwise the old tenant will walk away leaving the new tenant with an unexpected repair bill of perhaps tens of thousands of pounds.

By negotiating a financial settlement to cover the cost of the repairs that have accrued during the initial period of the lease, the new tenant can at least be certain that he has some of the money tucked away in the bank ready to pay for the repairs and any additional costs at the end of the lease will be for repairs that have been arisen during the period of his tenancy only.

Take proper advice from an experienced Chartered Surveyor before entering into any lease.