Commercial Property Solicitors

Delays at ports are one.

We have to hope that places like Felixstowe have thought this through. Any delays at ports would mean supply chain disruption. Deliveries could be delayed, contractual delivery commitments may not be met. Do those commitments perhaps need to be reconsidered? Does a business need look at its service level commitments, or perhaps stipulate longer times?

Conversely if your business is relying on other businesses delivering supplies to you, think about what happens if they are not able to continue to deliver in the way they have in past? Or indeed, if they go bust?

We may well see delivery costs go up. If there are duties and tariffs then those will be direct costs. Changes to regulatory regimes and compliance processes may take up increasing administrative time which may also involve increased cost spent on administration.

So how are these cost going to be borne? How can a business prepare for this?

Businesses really need to think not only of themselves but also about their customers and suppliers. How will these be affected, and how will this impact on you?

Many of the solutions, (some of them perhaps only partial solutions) are going to involve looking again at the terms of on which you do business. They are the businesses offer, and as ever they need to reflect what they can do, avoid making commitments which the business cannot keep, and manage the business risk.

There’s not a lot of time left, but part of it is planning: identifying what the risks are and working out how to mitigate them as best you can.

If you require assistance in reviewing your contractual commitments and negotiating new terms, please do contact me Adrian Chaffey at [email protected] or telephone Ipswich 01473 213311 or Colchester 01206 584584 where I will be happy to speak with you.

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A break clause in a commercial lease is a contractual right typically for a tenant to terminate the lease before the expiry of the initial contractual fixed term. Break clauses can also be exercised for Landlord and in some cases for both landlord and tenant.

Any conditions to a break clause need to be strictly adhered to, so it always recommended that legal advice is sought before agreeing to a break clause in a lease, as often when the time comes to exercise a break clause it is too late to correct the error or ensure you have complied with the conditions.

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If you are you may wish to consider the following:-

1. Who is the proposed Tenant? Is the Lease going to be granted to an individual or to an existing company?
2. Is there going to be a Guarantor guaranteeing the terms of the Lease?
3. How long is the Lease going to be?
4. Is the Lease going to be inside the 1954 Act, i.e. at the end of the term do you want to be able to renew the Lease.
5. Have you agreed a break clause with the Landlord?
6. Have you agreed a rent free period with the Landlord? This will also need to be taken into account and included in the Lease.
7. Are providing a rent deposit to the Landlord? If so, how much is the rent deposit?
8. Do you want to be able to assign or underlet the property? Alienation clauses will need to be provided and put into the Lease.
9. Are you planning to carry out any works before the business is up and running. If you are then these works need to be approved by the Landlord while the Lease is being negotiated.
10. Details of your business and intended use.
11. Do you require searches and due diligence carried out?
12. Have you agreed a Covid-19 concession?

If you are you may wish to consider the following:-

1. Who is the proposed Tenant? Is the Lease going to be granted to an individual or to an existing company?
2. Is there going to be a Guarantor guaranteeing the terms of the Lease?
3. How long is the Lease going to be?
4. Is the Lease going to be inside the 1954 Act, i.e. at the end of the term do you want the tenant to be able to renew the Lease.
5. Have you agreed a break clause?
6. Have you agreed a rent free period? This will also need to be taken into account and included in the Lease.
7. Do you require a rent deposit? If so, how much is the rent deposit?
8. Do you want the tenant to be able to assign or underlet the property? Alienation clauses will need to be provided and put into the Lease.
9. Is the tenant planning to carry out any works before the business is up and running?
10. Information on tenant’s intended use.

A reversionary lease is a lease that is completed now but does not start until a future date, usually when the tenant’s existing lease ends. It allows the landlord and tenant to make the future arrangement legally binding before the current lease expires.

Why not simply vary the existing lease to extend the term?
Extending the term of an existing lease by variation can have unintended legal consequences. It may be treated as a surrender of the existing lease and the grant of a new lease, which can create registration, tax and drafting issues. A reversionary lease is often a cleaner way to document the new term.

Is a reversionary lease legally binding straight away?
Yes. Once completed, the reversionary lease is binding on both landlord and tenant, even though the tenant’s right to possession under that lease does not begin until the existing lease has ended.

What is the main advantage for a landlord?
The main advantage is certainty. The landlord secures an agreed future rental stream and reduces the risk of a gap in occupation or income when the current lease expires.

What is the main advantage for a tenant?
The tenant gets continuity of occupation. Provided the reversionary lease is properly drafted, the tenant can move from the existing lease into the new lease without disruption.
Is a reversionary lease always better than an agreement for lease?
Not always. An agreement for lease may be more appropriate where the new lease is conditional on something happening first, such as planning permission, landlord’s works, superior landlord consent or completion of alterations. A reversionary lease is usually better where both parties are ready to commit to the future lease immediately.

Can the new lease be on different terms from the current lease?
Yes. A reversionary lease can repeat the existing lease terms or introduce changes. Common points to review include rent, rent review, break rights, repairing obligations, alterations, assignment, underletting and service charge provisions.

What does “stapling” the leases mean?
“Stapling” means requiring the current lease and the reversionary lease to be transferred together while both exist. This helps prevent the landlord ending up with one tenant under the current lease and a different tenant under the future lease.

Does the existing lease need to be varied as well?
Often, yes. If the landlord wants the current lease and the reversionary lease to remain linked, the assignment provisions in the existing lease may need to be varied. This can often be dealt with as part of the reversionary lease documentation.

Does a reversionary lease need to be registered at the Land Registry?
It may need to be registered depending on the length of the term and how far in the future it starts. Your solicitor should check the registration position before completion.

Are there tax implications?
There may be tax implications, including possible Stamp Duty Land Tax consequences. The position depends on the lease terms, rent, premium, lease length and transaction structure. Tax advice should be taken before completion.

They are different arrangements. A reversionary lease is a future occupational lease granted to the tenant, usually starting when the current lease ends. A lease of the reversion sits between the landlord and the occupational tenant, making the new tenant the immediate landlord of the occupational tenant.

Landlords should review the current lease, the proposed new term, rent, rent review, break rights, assignment, underletting, alterations, repair, service charge, security of tenure, registration and tax position.

When should a landlord speak to a solicitor?
A landlord should take advice before agreeing heads of terms. Early advice helps avoid unintended surrender and regrant issues, missed registration points, tax problems or lease terms that do not work commercially.