Sports Law Clinic FAQs – Property

A. This will depend on the lease. 

In some cases, a landlord may be responsible for repairing and maintaining the common areas in a building, such as foyers, stairs and car parks, and a tenant may be responsible for repairing and maintaining only the inside of the premises, such as a shop within a shopping centre.

In other scenarios, such as in the case where a tenant is renting an entire building, the tenant may be responsible for repairing and maintaining everything from the roof to the access road.

Prior to entering into a lease, it is important that you understand what obligations you have with regard to the repair and maintenance of the property.

A. This will depend on the terms of the lease and the circumstances that you are in.

Some leases contain provisions that either party can terminate the agreement unilaterally (individually) by giving notice to the other. If this is the case in your lease, then it will be a case of giving valid notice to your landlord. It is rare that these clauses are included in commercial leases as it removes the certainty that both parties will ultimately desire.

There may have been a break clause negotiated into the lease. This occurs when there is a provision that the tenant has an option to terminate the lease after the 3rd year of a 7-year term. It may be worth consulting the lease to see whether there is a break date coming up soon. If there is, work out whether it makes commercial sense to wait until that date or try and get out of the agreement earlier. 

Depending on any prohibitions (limitations) contained in the lease, a tenant may also be able to assign (transfer) or sub-let their interest. Commercial landlords will often draft leases to allow the option for a tenant to assign or sub-let because it is commercially sensible – it allows the tenant a degree of flexibility. In these situations, it is likely that the landlord will want to include provisions to give them an element of control over who a tenant may want to assign or sub-let their lease (e.g. the outgoing tenant may be required to act as a guarantor for the incoming tenant, or the tenant may only be able to assign or sub-lease to an entity who has demonstrated that they will be able to keep up with the rent payments).

As a final option, it may be possible to negotiate with a landlord to surrender the lease. However, this will usually be against the landlord’s best interest, and they will expect a significant payment to agree with this.

A. The appropriate course of action will depend on whether you want to continue renting the property and encourage the landlord to fulfil their obligations, or whether you want to try and find another property to lease elsewhere. 

Initially, you should contact a solicitor for a fee quote. There are many potential pitfalls of attempting to navigate this situation without proper legal advice.

A. The rent review clause in the lease will likely stipulate on what basis the reviewed rent will be calculated. Generally, leases contain rent review clauses which are on an upwards-only basis and the most common method of calculating the increase is via an open market valuation of the rent – at the review date the rent will increase to the highest rental amount of the current basic rent and the open market rent at the review date.

If you are concerned that the landlord’s assessment of the open market rent is too high, you should look to appoint a local surveyor to negotiate on your behalf.

A. It is important to identify exactly what you want out of the property for your business. When considering a leasehold property, it is important that the price is right. However, it is also important to take into account factors including whether you may need to acquire a larger commercial property if your business grows or want to eventually purchase the freehold interest in your commercial property. These factors will likely influence whether you would negotiate a break clause into your commercial lease or request a clause giving you the option to purchase the freehold.

It is also very helpful to understand what type of ‘market’ you are looking to acquire commercial property in and the specific position of the seller/landlord. This insight will assist in knowing what is the ‘going rate’ for the type of property you are looking for and then enable you to negotiate accordingly – it could be the case that without this knowledge you end up paying more than the current market conditions. Also, being aware of the selling/letting party’s current position may influence how you negotiate – if a property is in exceedingly low demand and the owner is struggling to sell/let it, it would be sensible to make a lower offer initially.

Professional advisors such as chartered surveyors and lawyers may be able to assist you in understanding more about the property or the rest of the market and negotiate on your behalf.

A. This depends on your business’ financial position. Purchasing a commercial property outright will often be a significant investment for a business and most fledgling companies will not be able to make this type of transaction.

The reasons for purchasing a freehold interest are that:

• You will have more control over the property and not be at the whim of potentially difficult provisions which a landlord may try and include in a lease if the property rises in value during your ownership
• You will make money by buying and selling the asset.

A lease is a far more common choice for business premises. The reasons for leasing a property are that:

• Leases require little to no initial capital investment
• Short leases or leases which contain break clauses allow commercial tenants a degree of flexibility to change their premises rather than having to find a potential buyer for the property.

You have to assess which option is better for your commercial circumstances and make a decision that will benefit your business.

For example, if your business is growing quickly and you are looking for larger offices, it may be that a 7-year lease with a break clause after 3 years could be a better option than purchasing a building outright. If your business continues to grow, in 3 years’ time, you will be able to make the decision to exercise the break clause in the lease and find some even larger facilities to move into.

The alternative with a freehold is investing time and effort in finding a buyer for the property, in addition to covering the conveyancing costs of the property you are purchasing.

A. This will depend on two factors:

1. Whether or not the landlord has opted to tax for VAT purposes. If the landlord has opted to tax, VAT will be payable on the rent payments. If the landlord has not, rental payments will be exempt from VAT.
2. Whether or not your business is VAT registered. If your business is VAT registered and the landlord opts to tax, you will be able to recoup any VAT you pay as business expenses. However, if you are not VAT registered, your costs will include the rent payment and the additional VAT.

A. Begin by looking at the sub-letting terms in your lease. The majority of commercial leases will contain provisions which restrict sub-letting the whole of the property without certain conditions being met (e.g. the landlord’s prior consent). Many commercial leases contain similar provisions in relation to the sub-letting part of the property, and many may contain a complete prohibition of sub-letting part of the property completely. Usually, landlords want to maintain control of who occupies their property to ensure that the tenant’s obligations are being fulfilled.

A. It is important to visit the property to understand what type of area it is located in and whether it is suitable for your type of business. This will also give you an idea as to the condition of the property and if it is suitable for your use.

Check that the premises have the correct planning permission to allow you to use them for your intended business purpose and obtain the routine searches involved in acquiring leasehold property. You should seek legal advice to ensure that there is nothing missed – a solicitor will be able to advise you about potential issues and whether further professional advice is needed such as a qualified surveyor.