FAQs for Commercial Property Landlords

Commercial property remains a safe investment for many, despite challenges affecting the sector in recent years. However, to succeed as an investor, it is important to understand your legal obligations, the risks you may face, how to protect yourself and your options for dealing with the various scenarios that may come up.

In this article, we cover some of the most commonly asked questions by commercial property landlords, including some top tips on the things landlords can do to protect themselves.

What risks are there for landlords?

Problematic tenants are the biggest risk for commercial property landlords. Issues such as non-payment of rent and refusing to make good damage to the property can lose landlords considerable sums if not handled correctly.

Difficult relationships with tenants can also absorb a lot of a landlord’s time and energy, which can be frustrating but may also take them away from more profitable activities. If a landlord-tenant relationship breaks down, the landlord may find themselves on the receiving end of legal action or may need to take such action themselves to resolve the situation. This will, again, cost time, energy and money.

Having a well-drafted lease with clear terms and robust protections for the landlord can  help to reduce the landlord’s risk.

Landlords also face financial penalties if they breach their regulatory obligations e.g. failing to provide a compliant Energy Performance Certificate (EPC). Understanding these obligations and how to maintain compliance is critical.

Another risk that must be considered is difficulty finding and keeping tenants. Vacancy rates vary considerably across the UK depending on the type of property and area, so landlords must think carefully about the asset class to invest in as well as the location of the property.

How can landlords protect themselves?

Landlords should take several key steps to protect themselves, including:

• Making sure the lease is well drafted – This ensures both parties’ expectations are clear at the outset and the landlord’s legal risk is strictly limited. A well-drafted lease can also give a strong foundation for resolving any problems that may arise.
• Ensuring they fully understand their legal obligations – Landlords must familiarise themselves with their legal responsibilities, including those under their lease and more general obligations under the law.
• Having suitable insurance – This normally includes buildings insurance and loss of rent insurance which the tenant will reimburse the landlord for.
• Getting the right expert support if anything goes wrong – Should a problem arise, seeking expert legal advice at an early stage can limit a landlord’s legal and financial risk. The right support can allow many problems to be resolved quickly while keeping costs and disruption to a minimum.

What are a landlord’s legal responsibilities?

Landlords have various legal responsibilities, including:

• Maintenance and repair of the building as set out in the lease. Typically, landlords will be responsible for the building’s structure, such as the external walls and roof, while tenants will be responsible for the internal areas but this will depend on the lease. The tenant’s would pay the landlord a service charge in relation to the costs the landlord incurs in repairing and maintaining the building’s structure.
• Providing security of tenure in line with the terms of the Landlord and Tenant Act 1954. This means if the lease is not contracted out, tenants have a right to stay in the property after the lease term has ended and they have a right to a lease renewal on similar terms subject to lease modernisation.
• Providing an Energy Performance Certificate (EPC) which must achieve a rating of E or higher. The requirement is expected to increase to a C rating or higher from April 2027 and B or higher from April 2030.
• Any other legal obligations specified in the lease terms must also be met or the landlord could be considered in breach of lease. It is really important that these lease terms are carefully drafted and that the landlord fully understands the terms.

What should be included in a commercial lease?

The terms of a commercial property lease should be tailored to the specific property and situation. Exactly what to include will depend on the circumstances and expert legal advice should always be sought.

In general, key points to cover include:

• Who the parties to the lease are
• Exactly what constitutes the premises covered by the lease
• How long the lease is for
• How much the rent is
• How any rent increases will be calculated
• The landlord’s legal obligations
• The tenant’s legal responsibilities
• The process for agreeing any modifications or improvements to the property
• What needs to happen at the end of the lease (e.g. requiring the tenant to return the property to its original condition)
• Insurance requirements for both parties
• Conditions for under letting or assigning the lease to a third party
• Conditions for dealing with any defaults on the lease terms and how the lease can be terminated

How do commercial lease extensions work?

Where the tenant benefits from security of tenure, they will normally have the right to extend their lease on similar terms to those that currently exist subject to modernisation.

Where there is a lease agreement in place and the tenant is currently occupying the property for business purposes, they will have security of tenure. The only exception to this would be if the tenant agreed to forfeit this right as part of the original lease agreement, known as ‘contracting out’.

Lease extensions can be negotiated informally by the tenant and landlord, the tenant can make a statutory lease extension request, or the landlord can make the request. Landlords should always seek legal advice when dealing with lease extensions or if they are looking to end the lease at the end of the term.

When can a landlord increase the rent?

The lease should specify when the landlord can carry out a rent review with a view to potentially increasing the rent. Most commonly, these tend to be at either 5-yearly intervals or 3-yearly intervals. The lease will state how the new rent will be calculated and will include the assumptions that are to be made. Whilst most rent is reviewed to a market rent, it could also be reviewed with reference to the Retail Price Index or Consumer Price Index.

How Longmores can help commercial landlords

At Longmores, our Commercial Property team have the expertise and experience to negotiate and draft robust leases that protect landlords and commercial property investors.

We can answer your questions and make sure your investment is protected with the right lease terms and strong representation should any issues arise.

To discuss how we can help with a new lease or lease renewal, please contact Mitin Bhalsod, who will be happy to advise.

Please note, the contents of this blog are given for information only and must not be relied upon. Legal advice should always be sought in relation to specific circumstances.