If you own commercial property, it’s likely that you’ve considered leasing it at some point. A lease is a contractual bond between the landlord and the tenant, that grants the tenant absolute possession of the property for a defined period.
For those who are new to leasing and want to learn more, look no further. Our guide will provide you with everything you need to know if you’re interested in leasing a commercial property.
Commercial property leases explained
As mentioned earlier, a lease is a legal relationship between yourself as the landlord and the tenant. Leases differ from rental agreements because they are usually long-term contracts whereby the terms of the agreement can’t be changed until the lease expires. This is useful for landlords as it allows you to ‘lock-in’ a tenant for a significant amount of time, and it will also give you more stability in terms of finances.
When referring to commercial property, the landlord or property owner is typically referred to as the ‘lessor’ and the tenant is called the ‘lessee’. As well as this, commercial property leases can come in a range of styles and format, however, they usually refer to these main elements:
- Lessor and lessee – You cannot have joint tenants or joint landlords. There must be a single lessor and lessee.
- The type of property – You can lease a floor or a whole building, however, this must be affixed to land for the agreement to be classed as a ‘tenancy’.
- Rent – The lease will outline how much rent is due and when it should be paid.
- Term – The amount of time the tenant is permitted to stay in the property. This can be fixed or renewed periodically.
- Exclusive possession – This allows the tenant to deny access to anyone they wish (including the landlord) whilst the lease is valid.
Types of commercial leases in the UK
It’s important to consider the types of commercial leases so that you can pick the one that best suits your needs. In the UK, there are three main types of commercial lease.
This type of lease states that the landlord is responsible for paying for insurance, property tax and maintenance costs. Tenants can pay gross rent to the landlord as a flat monthly fee, and the landlord will pay the other property-related costs.
As the commercial property owner, you will need to calculate the overall costs of the total lease and account for other costs associated with the property such as utilities. Once this is done, you’ll be able to calculate a suitable monthly rent cost to charge your tenant.
These are the most common type of commercial property lease. A net lease states that the tenant is required to pay for some or all of the extra costs associated with the property, including:
- Utility bills
- Maintenance costs
Net leases can also be broken down even further into three main categories, these are:
- Single net lease – Taxes are the responsibility of the tenant and not the landlord.
- Double net lease – Taxes and insurance premiums are the responsibility of the tenant and not the landlord.
- Triple net lease – Tenants are responsible for all the property costs as well as the rent.
A percentage lease refers to a type of commercial lease in which the tenant pays a percentage of the revenue earned whilst in the property, plus the base rent rate charged by the landlord.
Many landlords choose to charge a lower base rate as you’ll receive extra income from your tenant’s revenue.
Get in touch with Abacus’ commercial property solicitors
If you want to lease your commercial property, but you’re unsure of where to start, our experienced team of commercial property solicitors can help you to draw up an effective lease that will suit both yours and your tenant’s needs.