Lease advice – introduction to leases

A lease is a contractual agreement between the lesee (user) and the lessor (owner). By singing the lease, the lesee obliges himself to pay the lessor a certain sum for use of an asset. An asset could be tangible such as real estate or intangible such as computer software (licence). In this article, as property solicitors, we will focus on commercial and non-commercial property rental arrangements.

Residential Leases

Firstly, let us look at the most important things you should be looking for before signing your non-commercial lease.

Parties

This part should be checked thoroughly by all the tenants and the landlord. This is especially so if the property is a house in multiple occupation (shared property). Should any damage occur to communal parts of the building or the apartment itself only those named on the lease document will be pursued by the property maintenance company or the landlord.

Rent

Agreed amount of monthly rent should be clearly expressed in the lease document. Tenants should be particularly careful about discounted offers (i.e. getting a better deal than that advertised). You will want to make sure that the discounted price is in the actual document, as it will quite likely contain a provision overriding any previous written or verbal agreements and negotiations. Also make sure that the date on which the rent will be payable each month is convenient for you (i.e. 1st of every month), to ensure that you have enough funds.

Deposit

Confirm the amount of deposit. Thoroughly check definitions of damage and wear and tear, as in the worst case scenario you could be paying for standard wear and tear fixes. Importantly, remember that landlords are not legally allowed to keep the deposits themselves and all deposits must be forwarded to the Deposit Protection Service. Once the funds have been deposited by your landlord with the DPS you will get a letter confirming that. In the case of disputes the DPS will act as a mediator.

Length of the Lease

Check length of the lease and confirm whether or not after the base length it converts automatically into a periodic tenancy (rolling on a monthly basis).

Pet Policy

Many people fail to properly verify whether or not pets are allowed. If you own or are planning to get a pet you should carefully study this section of the lease. Some leases may allow for pets with an additional pet fee, require an insurance policy or place restrictions on what animals can be kept in the apartment.

Utilities

Check what bills you are required to pay for yourself. Rarely, the rent may be inclusive of some utilities (i.e. water).

Commercial Lease

Rent and Rent Review Clause

Before signing your commercial lease you should closely look at what the actual rent is, what terms of the rent review clause say and what service charges are applicable. Firstly, you should determine how much and how often you will be expected to pay.

Secondly, dependent on your lease, you may want to negotiate your rent review clause. It has become increasingly common for landlords to include ‘upward only’ rent reviews. They essentially mean that if the property market rates fall down the rent will still go up. Although, these provisions have been commonly used for years the government is considering to ban them.

The Open Market Rent is typically defined as: ‘the best rent a property might achieve if on the open market at the review date with vacant possession, using standard marketing methods, without extra incentives, given a willing landlord and tenant, and taking into account the lease terms.’ Ideally, you will want an independent third party surveyor to establish the open market rent.

When reviewing a rent review clause, you should particularly look at various assumptions and disregards. You want to make sure that upon review the property is not reviewed in an unrealistic manner and that assumptions and disregards take into account practical situation of the property, its use and you as a tent.

Lastly, you will want to ensure that ‘time is not of the essence’ as missing a deadline by even one day could potentially result in serious contractual implications.

Transfer

Tenants should insist on being able to transfer the lease to another party. This offers a better way of exiting the lease than through a break clause. Transfer clause will be of particular importance to those business owners who may want to sell their business as a going concern in future.

Break Clause

You should carefully review terms and conditions for terminating the lease before its end date. If the lease is long there could specific dates at which termination would not attract any penalties.

For more guidance you may also refer to a good source of information for landlords and tenants – The Landlord Zone website.