Content of a lease – Repaid, insurance & landlord remedies-
Landlord’s perspective-
Fully Repairing & Insuring (FRI) Lease-
Investor commercial landlord will want to grant leases that guarantee a clear income stream via rent
I.e: they will want to ensure, the received rent is not reduced by ‘running costs’
o and will require the tenant to be responsible for these as owner of the leasehold
interest
Where the landlord does have to make such payments, under the ‘clear rent’ principle – the
tenant will have to reimburse the LL
Can pay directly, or indirectly (through service charge payments), for the repair and insurance of
the property.
-
‘Covenant strength’-
LL wish to ensure that their tenant is solvent + reputable and hence more likely to pay the rent/ sums
under the lease, comply w covenants & perform other maintenance + repair works
This referred to as = ‘Covenant strength’
Commercial landlords wish to be sure their tenants can pay the current (“passing”) rent, & also future
uplifts of rent.
Usual to have a rent review every 5 years, enabling the landlord to increase the rent in line with
the rental market.
If a landlord has tenants with good covenant strength, the property will be more attractive to potential
buyers and its capital value will be likely to increase
Landlords will want to gather information about the finances of any proposed tenant to assess
its covenant strength before accepting it as a tenant.
Although are expected to have an awareness of covenant strength
-
Security – rent deposit & guarantees-
LL will ask for a rent deposit - paid prior to the grant of a lease to be held usually for the duration of the
tenant’s ownership of the lease.
Documented in a rent deposit deed – sets out the circumstances in which the LL can draw
against the deposit money & how the money will be repaid to the T
LL entitled to use the deposit for unpaid rent, service charge (if any) and insurance rent.
Also common for LL to be entitled to deduct any costs, losses and expenses suffered by the
landlord due to a breach by the tenant of its covenants in the lease.
, Landlords like rent deposits because they provide immediately accessible funds as soon as the tenant is
in breach of its lease.
It is usual to place the rent deposit money into a separate deposit account (that only the
landlord can withdraw from and only in specified circumstances).
If a tenant does not want to deposit funds by way of a rent deposit there may be alternatives to deal
with the landlord’s concern over the tenant’s covenant strength.
The landlord may require another party (e.g. a parent company or an individual) to guarantee
the perfo rmance of the tenant’s obligations under the lease.
o Sometimes a company’s bank is prepared to offer a bank guarantee up to a certain
value.
o Giving a guarantee should never be done lightly. Guarantors should be fully advised
about their potential liabilities under a guarantee as they can be far reaching and long
lasting
--
Tenant’s perspective & the Code for leasing Business Premises-
The tenants objectives in agreeing the lease will be:
To ensure that there are no restrictions in the lease which prevent it from using the premises for
the required purpose
To ensure that the rent does not rise too steeply & that the lease does not contain any unduly
onerous provisions
To ensure it can assign/ underlet the lease if the premises are no longer required during the
term of the lease
-
Effect of the Code-
If you are looking at amending a lease from a tenant’s perspective, the Code gives some excellent
suggestions for making the lease more tenant- friendly.
The Code is voluntary but is expressed in strong terms to encourage landlords to adopt its
recommendations.
However, not many landlords have done so in practice.
--
Today’s Market-
Landlords view-
LL are concerned about the value of their freehold interest & generally governed by lenders’
requirements to grant FRI leases
Landlord’s perspective-
Fully Repairing & Insuring (FRI) Lease-
Investor commercial landlord will want to grant leases that guarantee a clear income stream via rent
I.e: they will want to ensure, the received rent is not reduced by ‘running costs’
o and will require the tenant to be responsible for these as owner of the leasehold
interest
Where the landlord does have to make such payments, under the ‘clear rent’ principle – the
tenant will have to reimburse the LL
Can pay directly, or indirectly (through service charge payments), for the repair and insurance of
the property.
-
‘Covenant strength’-
LL wish to ensure that their tenant is solvent + reputable and hence more likely to pay the rent/ sums
under the lease, comply w covenants & perform other maintenance + repair works
This referred to as = ‘Covenant strength’
Commercial landlords wish to be sure their tenants can pay the current (“passing”) rent, & also future
uplifts of rent.
Usual to have a rent review every 5 years, enabling the landlord to increase the rent in line with
the rental market.
If a landlord has tenants with good covenant strength, the property will be more attractive to potential
buyers and its capital value will be likely to increase
Landlords will want to gather information about the finances of any proposed tenant to assess
its covenant strength before accepting it as a tenant.
Although are expected to have an awareness of covenant strength
-
Security – rent deposit & guarantees-
LL will ask for a rent deposit - paid prior to the grant of a lease to be held usually for the duration of the
tenant’s ownership of the lease.
Documented in a rent deposit deed – sets out the circumstances in which the LL can draw
against the deposit money & how the money will be repaid to the T
LL entitled to use the deposit for unpaid rent, service charge (if any) and insurance rent.
Also common for LL to be entitled to deduct any costs, losses and expenses suffered by the
landlord due to a breach by the tenant of its covenants in the lease.
, Landlords like rent deposits because they provide immediately accessible funds as soon as the tenant is
in breach of its lease.
It is usual to place the rent deposit money into a separate deposit account (that only the
landlord can withdraw from and only in specified circumstances).
If a tenant does not want to deposit funds by way of a rent deposit there may be alternatives to deal
with the landlord’s concern over the tenant’s covenant strength.
The landlord may require another party (e.g. a parent company or an individual) to guarantee
the perfo rmance of the tenant’s obligations under the lease.
o Sometimes a company’s bank is prepared to offer a bank guarantee up to a certain
value.
o Giving a guarantee should never be done lightly. Guarantors should be fully advised
about their potential liabilities under a guarantee as they can be far reaching and long
lasting
--
Tenant’s perspective & the Code for leasing Business Premises-
The tenants objectives in agreeing the lease will be:
To ensure that there are no restrictions in the lease which prevent it from using the premises for
the required purpose
To ensure that the rent does not rise too steeply & that the lease does not contain any unduly
onerous provisions
To ensure it can assign/ underlet the lease if the premises are no longer required during the
term of the lease
-
Effect of the Code-
If you are looking at amending a lease from a tenant’s perspective, the Code gives some excellent
suggestions for making the lease more tenant- friendly.
The Code is voluntary but is expressed in strong terms to encourage landlords to adopt its
recommendations.
However, not many landlords have done so in practice.
--
Today’s Market-
Landlords view-
LL are concerned about the value of their freehold interest & generally governed by lenders’
requirements to grant FRI leases
