When taking on a new business/commercial lease, it is useful for the new tenant to be aware of the various elements of the process.
Heads of Term
These are the principal terms of the lease. It is highly recommended that these are negotiated and written down by the landlord and tenant from the outset. The Heads of Terms (HoT) do not need to be very detailed as it’s the solicitors’ job to deal with the details, but the more areas are covered, will mean a lower legal bill. The following are some examples of the principal terms:
Â -Â Full name, address and contact details for each party
Â -Â Legal representatives of each party
Â -Â Full address of the property subject to the lease
Â -Â Type of lease (e.g. full insurance and repair)
Â -Â The lease term (ie the length)
Â -Â Rent amount
Â -Â Break clauses (if any)
Â -Â Rent review (if any)
Â -Â Use of the property
Â -Â Rent Deposit (if any)
Â -Â Guarantor details (if any)
Â -Â Lease assignment and sub-letting to a third party
Â -Â Service charge and insurance obligations
Â -Â Renewable (ie whether the lease will be protected under the Landlord and Tenant Acts, giving the tenant the right to automatic renewal of the lease at the end of the lease)
There are three basic searches which a tenant should consider having, though this will depend on what the landlord will provide:
Local Authority – this will show the recent planning history, highway proposals, compliance with statutory regulations affecting the property, amongst other things.
Water & Drainage – this will show whether the property is connected to both foul and surface water drains (a public sewer) and if the property is served by mains water.
EnvironmentalÂ – this will show previous and nearby potential contaminative users, whether the property is in a flood basin, and whether the property is considered to be contaminated.
Depending on the individual property, the tenant may require other searches, particularly if the property is a development site:
Â -Â Public utility searches
Â -Â Commons registration search
Â -Â Index map search
Â -Â Coal mining
Â -Â Village Green search
Investigating the Title
The Tenant’s solicitor will request documentation from the other side to check that the landlord has the right to grant the lease, and to see if there are any restrictions that would affect the tenant for its intended use of the property.
Where a tenant takes a loan to finance the new lease, this will usually take the form of a mortgage and a legal charge will be registered against the leasehold title. Most lenders will instruct their own solicitors to act for them.Â The Lender will need to be satisfied that all the usual due diligence is carried out by the tenant’s solicitor.