Given the significant investment (both in time and money) involved in taking on, or the construction or fit-out of, commercial or retail premises prior to a lease being entered into, it is important for both landlords and tenants to agree to their requirements. This takes the form of an Agreement for Lease which is a binding agreement between a landlord and prospective tenant to grant or accept a lease in the future.
A tenant takes on a lease when it wants to occupy (but not own) certain premises. This could be in a shopping centre for instance, where the tenant wants to trade amongst other retailers. The lease itself sets out the details of that occupation (the premises, the rent and the conditions under which the tenant occupies). It’s entered into usually on or around the time that the tenant takes entry and is a binding contract between the parties setting out each of their rights and responsibilities to the other party.
What does an Agreement for Lease cover?
An Agreement for Lease deals with other ancillary matters that have to be dealt with before the lease is signed. In the situation where the premises (the shopping centre in our example) has yet to be built, the Agreement for Lease would set out when it is to be built, how it is to be built and when opening of the various units would be triggered.
No matter how well a development is planned there are always acceptable tolerances in the building work (the premises once built will usually be slightly larger or smaller). Rent is often then calculated by reference to a formula within the Agreement for Lease, based on what is actually built.
The Agreement for Lease also often deals with supplementary information on the condition and history of the property (for instance Energy Performance Certificates, title due diligence, asbestos requirements etc.), and obtaining the relevant searches before the lease is signed.
It usually covers insurance whilst the property is constructed and any warranties that the incoming tenant will receive from builders and other contractors. This could be important as the tenant will be responsible for the premises once the lease commences and may be able to claim some costs back if there has been faulty workmanship.
Agreements for Lease can be very complicated, sometimes longer than the lease they support. However, dealing with them properly is undoubtedly of benefit to both tenant and landlord. Money saved by not taking proper advice may well be a false economy as each Agreement for Lease should be very much tailored for the particular premises and individual circumstances.
If you would like more information please contact a member of our commercial property team.
