Law guide: Property

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Drafting a commercial lease

Drafting a commercial lease

Contents

General contents and structure of a lease

A commercial lease is often a complicated and lengthy document. It deals with a wide variety of subject matters from basic details such as the names of the parties, a description of the property and the fixed term (length) of the lease to more complex issues such as the rights, obligations and remedies of both landlord and tenant, calculation of service charges and rent reviews.

Generally, the contents and presentation of a lease do not have to follow any prescribed form or structure and therefore how the lease is presented will vary depending on the particular style of its author.

However, generally the contents of a lease will be ordered as follows:

Commencement

A well drafted lease should begin with a contents page.

In England and Wales new regulations came into force on 19 June 2006 requiring all new leases to be registered at the Her Majesty's Land Registry (HMLR) to contain certain 'prescribed clauses' which must appear in a schedule at the beginning of the lease. Leases with a term of seven years or more must be registered at HMLR. A tenant has an option over whether or not to register a new lease if it has a term of less than seven years. The 'prescribed clauses' are essentially a summary of the main clauses or information contained in the lease which HMLR need to refer to when dealing with the registration process.

In Northern Ireland only commercial leases for longer than 21 years must be registered at the Land Registry of Northern Ireland.

Date and details of the parties

Depending on how the lease has been drafted, the next part would contain the date of the lease and the names and addresses of the parties. The date of the lease will usually be left blank for the parties to fill in manually on the day of completion.

Definitions and interpretation

The majority of leases contain a section defining particular words which are repeatedly used in the document and bear a specific meaning. It is convenient to define these words under a definition section so avoid needless repetition of recurring words and phrases. Words that have been defined will start with a capital letter so that they are easily identified in the lease.

In a commercial lease, it is common to define the following words:

  • Premises – being the property which is the subject matter of the lease
  • Building – usually required if the lease relates to part of a building
  • Common parts – being the parts of the building which are used in common with other tenants in the building (such as lobbies and lifts)
  • Plan - being the plans or plans of the property which are usually attached to a lease
  • Term – being the fixed term of the lease

Leases also contain a small section to clarify any potential issues regarding its interpretation, such as confirming that any references to a particular gender are also references to the other or that the reference to an Act of Parliament also includes an amendment or modification of it. These are usually standard clauses which appear in most commercial agreements.

Operative clauses

This part of the lease will specifically refer to the landlord granting a lease of the property to the tenant for the specified term together with certain other rights on the condition that the tenant pays the rent and complies with various covenants (promises to do or not to do certain things). The landlord will also reserve certain rights and easements (a right to use someone else's land for a specific purpose, e.g. to walk on their pathway) for their benefit. A list specifying the rights and covenants for each party would usually be found in separate schedules.

Schedules

Most of the detail of a lease can found in its schedules. The following matters are usually contained in schedules:

  • A full description of the property
  • The rights granted to the tenant – such as rights of way over common areas of the building
  • The tenant's covenants – this would contain an extensive list of obligations generally setting out what the tenant can and cannot do to the property and will include such matters as subletting, making any alterations, repairing and decorating and using the property in accordance with its permitted use as determined by the local authority
  • The rights reserved by the landlord – such as the right to enter the property and undertake repairs to it
  • The landlord's covenants – this would usually contain provisions relating to repairing obligations and building insurance
  • Service charges – this would contain provisions identifying the services that the landlord will provide and the related costs to be allocated to the service charges, how service charges are calculated and the process for payment and provision of service charge accounts
  • Rent review – this would contain provisions relating to the process and calculation of any rent reviews to be undertaken during the term of the lease
  • Plans – sometimes the lease plan is attached to a separate schedule

Provisos

Grouped together under the heading of provisos are a variety of clauses that cannot be easily dealt with elsewhere in the lease. These clauses are neither in the nature of covenants nor easements nor do they impose obligations upon the parties. Sometimes the provisos are contained in a separate schedule of their own. Examples of provisos include:

  • Provisions for re-entry by the landlord
  • Details of where and upon whom notices should be serviced
  • Transfer of the landlord's liability under the lease if he or she sells the property

Signature

This page will contain the details of the parties and appropriate wording (which differs depending on whether a party is an individual or company) so that the lease can be signed by the parties. If a party is an individual, their signature must be witnessed by an independent adult witness who must also sign the lease and print their full name, address and occupation on it.