Guide to Leasing Land and Commercial Property
The Need for Advice
The letting of land or buildings usually makes the arrangement (whether written or not) subject to a statutory regime. Many of the traps contained in those regimes can be avoided with expert advice.
This note does not deal with land or buildings let or occupied for residential purposes.
Our Service and Costs
Fraser Dawbarns have a commercial team whose members are all experienced in dealing with all types of leases of commercial property, ranging from agricultural land to office blocks, hotels to shooting rights, factory units to forestry and also green energy facilities. In appropriate cases we are very happy to give fixed price quotations for all stages of a transaction on request.
Land can be let for the purposes of a business (e.g. a golf club, or for mineral extraction, or for open storage). If so, it will fall under the statutory regime imposed for business tenancies described below. More usually, land is let for agricultural purposes, in which case the farm business tenancy regime applies, unless the tenancy started before 1st September 1995.
A farm business tenancy does not give any real security to the tenant beyond the contractual term, other than a requirement for at least 12 month’s notice to terminate it, if the contractual tenancy is for over 2 years. If the tenancy is for 2 years or less, it will end on the termination date, without any requirement for notice.
If there is any risk that the tenant under a farm business tenancy may diversify into non-agricultural activities (which could convert the tenancy into a business tenancy), the landlord should serve a notice that the tenancy is to be a farm business tenancy, which will prevent the business tenancy regime applying to the tenancy.
Care needs to be taken in relation to informal arrangements. For example, an informal yearly tenancy would require a full 12 months notice to terminate it. It would not terminate without notice at the end of the year.
Grazing licences can be used for short term occupation for grazing only, but these need to be carefully prepared to ensure that the occupier does not become a business tenant.
Buildings (as with non-agricultural land) are usually let under the statutory regime for business tenancies. A tenancy for more than 6 months gives the tenant statutory protection. This protection includes a right to receive at least 6 months notice from the landlord to end the tenancy after the end of the contractual term, and the right to apply to the court to renew the tenancy at the end of the contractual term. The landlord can resist the application for statutory renewal, but only on very limited grounds. Therefore a tenant could remain in possession for many years.
The parties can agree to exclude the statutory protection, but this requires that correct procedures are followed before parties become legally bound, either by contract or lease. The exclusion of statutory protection is essential if the landlord wants to be able to exercise a break clause in the lease.
Some landlords mistakenly believe that if they describe the agreement as a ‘licence’, the occupier will have no statutory protection. This is not correct. A court would analyse the effect of a document, without regard to the description of the document. If the arrangement between the parties has the attributes of a tenancy, then the court would uphold the tenant’s statutory protection.
It is extremely dangerous for a landlord to allow a tenant to go into possession of premises without having proper documentation in place. An unwary landlord may find himself stuck with an unwanted tenant.
Leases of any type of property may require provisions relating to rent payment, length of lease, identification of the property, insurance obligations, assignment and subletting, guarantees and rent deposits, and rent review. Lease of a part of a building or estate usually require additional provisions relating to service charges, and rights of access and use of services.
If the property is subject to a mortgage, the consent of the lender must be obtained for the lease. Otherwise the landowner may be in breach of the terms of the mortgage.
Energy Performance Certificates
It is obligatory for the landlord of any property having any form of heating or air conditioning to provide the prospective tenant with an EPC, before the parties enter into the lease or tenancy agreement.