Those looking to take up a lease of a commercial property will generally engage in the following process:
1.Heads of Terms
You and the landlord are likely to have agreed the key terms of your lease including, for example, the rent, permitted use, length of term, repair and decoration responsibilities, extent of the property being leased etc. If you are using an estate agent/selling agent, these terms will likely be set out in a document titled ‘Heads of Terms.’
2. Instructing Solicitors
Once appointed, the Heads of Terms will be sent to yours and the landlord’s respective solicitors so they can liaise with each other and raise any questions about it.
It may be that in addition to a lease, further lease documents may be required including:
A rent deposit deed, if you are paying a deposit to be held by the landlord;
A licence for alterations (if required by the landlord), where you plan to carry out works/alterations to the commercial property. This licence would document the landlord’s consent to the works or alterations you propose to carry out. It is, however, separate to any additional permission/consent you may also need to obtain under planning legislation;
An agreement for lease. This would be an important document to have where you require planning permission, e.g. authorising a lawful change of use to the commercial property to suit your business needs or to enable you to carry out any works or alterations to the property. By entering into this agreement, the landlord will be obliged to grant you the lease once planning is obtained, protecting you from the risk of the landlord withdrawing from your arrangement whilst you are waiting for planning to be granted and once you have already incurred costs in this regard. It will also protect you from having to try to renegotiate terms with the landlord whilst you wait for planning permission. This agreement however can only exist if the landlord is willing to enter into it.
3. Contract Package
Your solicitor will be sent a title pack from the landlord’s solicitor. This will usually include a draft lease (and any other lease documents), title documents, and the landlord’s replies to Commercial Property Standard Enquiries (CPSEs). CPSEs are a standard set of enquiries used to draw out detailed information about a commercial property.
Once your solicitor has received the title pack, they will carry out due diligence. This involves your solicitor reviewing the draft lease (and any lease documents), investigating the title to the property, and reviewing the landlord’s replies to the CPSEs. They will be checking that the landlord is legally able to grant you the lease and that there are no defects in the title that would adversely affect your interests, e.g. restricting your proposed use of the property. They will also be checking whether consent of any other party would be required for your lease, e.g. the consent of a superior landlord where there is already a lease associated with the property, or the consent of a mortgagee.
At this stage, your solicitor will usually also submit searches to various authorities. Whilst there is no legal requirement for searches to be undertaken, these are always recommended to ensure you are proceeding with a full and comprehensive understanding of the property you wish to take a lease of.
Once your solicitor has reviewed the title pack and search results they will usually raise further enquiries with the landlord’s solicitor.
5. Report on Title
Once your solicitor is satisfied with the information they have obtained following their due diligence, negotiations will then take place between both parties’ solicitors to agree and finalise the lease and other lease documents. Your solicitor will review the draft lease (and other lease documents), making any necessary amendments (after liaising with you where necessary), in light of their due diligence of the property and considering the Heads of Term.
Once the lease and lease documents (if applicable) are agreed, your solicitor will report to you. This ‘Report on Title’ will identify the key terms of the lease and lease documents including your obligations and highlight whether there are any matters of concern to be aware of. If you are happy to proceed at this stage, then you will usually sign and return the lease (and lease documents) in readiness for completion.
Your solicitor will also send you a completion statement setting out the completion monies due from you to the landlord on completion including the first rent payment, service charge, insurance payment and any rent deposit monies if applicable. This completion statement will also include other disbursements/expenses due from you such as the searches fees, Stamp Duty Land Tax (SDLT), and Land Registry fees.
Your solicitor will carry out pre-completion searches at the Land Registry just prior to completion.
The lease and any other lease documents will be dated by both parties’ respective solicitors and will then be completed. Your solicitor will send the completion monies to the landlord’s solicitor. You will then be able to collect the keys to the property (normally from the estate agent/selling agent). The terms of the lease including yours and the landlord’s obligations will usually start now (unless the term commencement date is specified as being later than the completion date).
7. Post Completion Matters
Following completion your solicitor will file an SDLT return, if due, and will register the lease, if applicable, at the Land Registry. Leases under 7 years do not need to be registered. Following confirmation of registration from the Land Registry (if applicable), your solicitor will send you a copy of the up-to-date register of title and the landlord’s signed lease (and other lease documents). Your signed counterpart will be provided to the landlord.
If you are looking to take a lease of a commercial property or would like some assistance with the above, contact a member of our commercial property team today on 0845 287 0939 or get in touch by email for comprehensive and up-to-date legal advice.