There are three main types of commercial property tenancy agreements which should be considered when letting commercial premises.
This is suitable for letting commercial premises for periods of at least 6 months to a maximum of 25 years.
One of the main distinguishing features of the lease is that it gives the tenant a right of exclusive possession of the premises.Â The Landlord cannot enter the premises unless under specific circumstances listed in the lease.Â This means that it is not suitable for situations where the landlord needs to share occupation of the premises with the tenant.
Leases create a leasehold interest that is recognized in property law, and they must be for a fixed period, though it is possible for the lease to run on after the fixed period is over, where it becomes a Periodic Tenancy or Tenancy at Will (see below).
Tenancy at Will
The tenancy at will allows for flexible letting arrangements where a short term commercial premises need to be let. It is used for short periods, but it is indefinite and does not contain a fixed period. It can be ended with one party giving notice to the other. As such, it does not give the landlord security of having the tenant rent the premises for a certain period.
The Notice period is usually short (1 to 6 months) but can be agreed as longer or shorter if the parties prefer.
This type gives the tenant exclusive possession.
It is automatically terminated by a transfer of the landlord’s interest, by the death of either party or where a new tenancy is granted in relation to the same premises.
It can arise by implication, for example where a tenant is permitted to continue in possession after a lease has expired.
When granting a tenancy at will, care should be taken to avoid inadvertently creating a periodic tenancy (see below) which could necessitate a longer notice period as at least one period of the tenancy will have to be given as ‘notice’.
Licence to Occupy
This is a shorter and simpler than the lease agreement.
It does not give the tenant an exclusive right of possession and so the landlord can enter the premises if it so wishes. It is for this fact, that the Licence to Occupy is used where and landlord and the tenant need to share occupation of the same premises.
As there is no exclusive possession it cannot create a leasehold interest for the tenant.
This is a tenancy agreement that continues for fixed period intervals until terminated by either party giving notice. The ‘period’ depends upon how frequent rent is paid under the agreement, so if rent is paid on a weekly basis, then only one week’s notice is required.
It can arise where:
Â -Â the tenant is in occupation and pays rent for a lengthy periodÂ without a formal letting agreement
Â -Â the tenant is in occupation and pays rent though the terms of a lease have been agreed ‘subject to contract or lease’, but the lease has not yet started.
Although it is sometimes used for commercial property, it is more often used for residential property.
If you are a landlord or a tenant of a new lease, then contact our Commercial Property Department and speak to one of our solicitors who will be happy to assist you.