Commercial Lease for a Shop

Explanatory Notes

Commercial Lease for a Shop

This form of Shop Lease is intended for use of a short-term commercial lease of a shop. Assignment and sub-letting is not permitted. It is assumed that the Shop Lease Agreement will be contracted out of the Landlord and Tenant Act 1954 and that it will be a head lease or, if an under lease, that the Shop Lease complies with the requirements of the head lease. This Shop Lease Agreement has been drafted so as to comply with the relevant recommendations of the Code of Practice for Commercial Leases (second edition, April 2002).

Landlord and tenant law is a complex area of law and specialist legal advice is always recommended before entering into a Commercial Lease, whether you are a landlord or a tenant.

DEFINITIONS & INTERPRETATION

Note the following in the Shop Lease Agreement:

• Rent is the basic rent only. Insurance costs, rates and utilities charges will be in addition to the basic rent.
• The building is the whole of the land and building owned by the landlord. The premises is part of the building which is let to the tenant. The description and extent of the let property will depend on the type of construction of the building. You should consider whether any structural or external areas should be included in the Shop Lease Agreement. The windows and shop fascia should be specifically mentioned in the Commercial Lease.

GRANT

The Shop Lease is granted for a fixed term. No title guarantee is given. The grant is made subject to the matters affecting the landlord's title at the date of the Shop Lease Agreement.

The rent, together with VAT on it, and all other sums due under the Commercial Lease are all reserved as rent.

RIGHTS

This section in the Commercial Lease describes the rights granted to the tenant and the rights reserved to the landlord together with other rights to which the Shop Lease is subject. Reference is made to the rights and reservations in the transfer under which the landlord holds the freehold of the premises. Clause 4.5 of the Shop Lease Agreement expressly excludes any rights over any adjoining property (other than any rights which may be specifically granted under clause 4.2). Clause 4.5 of the Commercial Lease also excludes the provisions of section 62 of the Law of Property Act 1925 in the absence of which the Commercial Lease would confer on the tenant all easements, rights and advantages enjoyed by the premises at the date of the Shop Lease.

RENT AND OTHER PAYMENTS

This section of the Shop Lease Agreement lists payments the tenant must make to include rent and all outgoings in respect of the premises to include VAT.

INSURANCE

It's for the landlord to insure the building (other than plate or window glass) and for the tenant to refund a fair proportion of the premium. 

NO ASSIGNMENT, SUBLETTING OR DEALINGS

This section of the Commercial Lease includes an absolute prohibition on dealings – i.e. transferring the Shop Lease to someone else or subletting.

REPAIR & DECORATION

This is not intended to be a full repairing and insuring commercial lease. There are three specific obligations on the tenant:

1. To keep the premises clean and tidy and to keep the windows clean.
2. To replace broken or damaged glass.
3. To redecorate and replace the floor coverings at the end of the term. 

There is then a general repairing obligation on the tenant. On the assumption that the Shop Lease is not a full repairing lease, this section of the Shop Lease Agreement includes wording limiting the repairing obligation by reference to a schedule of condition. It may not be worth the time and expense of preparing a schedule of condition for a short-term commercial lease and, from the tenant's point of view, it would be better to delete the obligation all together.

If the tenant retains structural parts, the tenant may require a repairing obligation on the landlord.

ALTERATIONS & SIGNS

This section of the Shop Lease Agreement allows the tenant to put up and remove non-structural, de-mountable shop fittings. Re-instatement is required at the end of the term of the Commercial Lease, only if this is reasonable.

Otherwise, the tenant may not carry out any alterations including alterations to service media. Section 8 of the Shop Lease Agreement may, therefore, need to be amended.

TENANT TO REMEDY BREACHES

The landlord has a right to enter the premises to carry out repairs, if the tenant fails to do so.

USE

The Permitted Use is as a shop for sale of specified items. The description of the specified items in the Commercial Lease should be wide enough to cover the tenant's proposed business over the term of the Shop Lease.

LEGAL OBLIGATIONS

This section of the Shop Lease Agreement sets out the tenant's obligations to comply with all lawful requirements in respect of the premises.

RETURNING THE PREMISES TO THE LANDLORD

This section of the Shop Lease Agreement sets out the tenant's obligations at the end of the Commercial Lease to remove all stock, fixtures and fittings.

INDEMNITY

There is a broad obligation on the tenant to indemnify the landlord, both for breach of covenant and for the tenant's acts or omissions. Acts or omissions are not limited to negligent acts or omissions and a tenant will need to check that it has appropriate insurance cover or seek to amend the provisions in this section of the Shop Lease Agreement.

LANDLORD'S COVENANT FOR QUIET ENJOYMENT 

The landlord covenants with the tenant that, so long as the tenants pays the rents reserved by and complies with its obligations in the Shop Lease, the tenant shall have quiet enjoyment of the premises without any lawful interruption by the landlord or any person claiming under the landlord.

CONDITION FOR RE-ENTRY

The right of re-entry on a breach of covenant by the tenant must be expressly reserved.

LIABILITY

Note to include the provisions of clause 16.2, where the tenant is more than one person.

NOTICES

This Commercial Lease includes a short form notice clause. Notices must be in writing (except in case of emergency or if the Shop Lease Agreement states otherwise) and writing includes faxes, but does not include email

ENTIRE AGREEMENT & EXCLUSION OF REPRESENTATIONS

The purpose of an entire agreement clause in the Shop Lease Agreement is to set the limits of contractual obligations and to prevent the party relying on the clause from being liable for representations made before the Shop Lease is entered into. 

In this clause of the Commercial Lease, the landlord seeks to exclude liability for pre-contractual (mis)representation. This will only be valid if it is reasonable and the issue of reasonableness will be looked at in the context of each particular case.

MISCELLANEOUS

Landlord and Tenant Act 1954

It's assumed that the Commercial Lease will be excluded from the security of tenure provisions of the Landlord and Tenant Act 1954. 

Under the Landlord and Tenant Act 1954, a business tenant is entitled to have their Shop Lease renewed at the end of the term, except in certain circumstances; in particular, when the landlord wants to redevelop the site. It is, however, possible to exclude the provisions of the Act so that the tenant does not have any protection. There are now three specific requirements if the tenant is not to obtain security of tenure at the end of the term:

1. The landlord must give a notice to the tenant in a prescribed form at least 14 days before the tenant enters into the tenancy or becomes contractually bound to do so. The form of notice which contains a 'health warning' is attached to the Shop Lease Agreement.
2. The tenant must sign a declaration in front of a solicitor or commissioner for oaths confirming that they have received the landlord's notice. The form of declaration is attached to the Shop Lease Agreement.
3. The Shop Lease Agreement must refer to the above procedures as having being complied with and confirm that the landlord and tenant agree to exclude the security of tenure provisions in Sections 24 to 28 of the Landlord & Tenant Act 1954.

It is, in fact, possible for the notice to be served less than 14 days before the new tenancy but if Sections 24 to 28 are to be effectively excluded, the notice must still be given and the tenant must sign a statutory declaration in front of a solicitor or commissioner for oaths before the tenant goes into possession or becomes contractually bound to take up the Commercial Lease.

Contracts (Rights of Third Parties) Act 1999

The exclusion of the operation of the Contracts (Rights of Third Parties) Act 1999 is excluded - the effect of which might otherwise be to give certain third parties the benefit of provisions in the Shop Lease Agreement.

Landlord and Tenant (Covenants) Act 1995

It's common practice to include a statement that the Commercial Lease is a new tenancy for the purposes of the Landlord and Tenant (Covenants) Act 1995 (i.e. one granted after 1 January 1996) so that the status of the Shop Lease Agreement is clear.