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Becoming a Commercial Property Landlord

Tuesday November 29, 2022

Commercial

Commercial leases allow landlords to rent property out to tenants solely for commercial use, providing monthly revenue and occupancy in their property.

Through drafting a commercial lease, landlords should think about the obligations that fall on them and consider how it will be set out in the agreement. Below are some things to consider when becoming a commercial property landlord.

1. Repairs and Dilapidations

Whilst tenants are generally expected to keep a rented property in the same state it was before the lease, a landlord could be responsible for some dilapidations.

Depending on what was agreed in the lease, a landlord may agree to assume responsibility for structural issues, such as roof damage, with anything outside of this scope falling to the tenant. 

The maintenance of the property should be clearly set out in the commercial lease to avoid confusion if damage occurs. It is also encouraged to detail how a tenant will contact the landlord when repairs are required and the landlord’s responsibility to fix them.

It is common for a service charge to be included in commercial property leases. A service charge allows the landlord to recover costs they have incurred from the general maintenance of the property. The amount can vary and should be agreed between the landlord and tenant before entering into any agreement.

2. Commercial Property Insurance

Where the commercial landlord does not wish to be responsible for repairs, they may consider an FRI lease. These leases place the responsibility on the tenant for repairs, and it could extend to the tenant contributing to the service charge, or directly fixing the problem themselves. Experienced property lawyers can help landlords decide whether this is an option when renting property.

Another way for landlords to mitigate the costs of repairs is to get commercial property insurance, set out in the terms of the commercial lease. The insurance cost can be retained by the landlord or passed on to the tenant, which should be established ahead of time.

Business insurance policies are not a legal requirement but taking out cover can help the landlord avoid undue financial hits from unexpected damage to a rental property.

3. Energy Efficiency

Before renting any property, commercial or residential, all rented properties in England and Wales must have an Energy Performance Certificate (EPC) rating above E. For commercial properties which have been rented for a while, development may be required to bring the EPC rating higher. Adding cavity wall insulation or double glazing is a responsibility all commercial landlords should be aware of, as failure to comply with this obligation could result in a fine up to £5,000.

4. Health and Safety

Landlords hold a duty to keep the property safe for their tenants before and during the commercial lease. The responsibilities are split between the tenant and the landlord and should be clearly identified in the lease agreement to avoid disputes later on.

The landlord could be expected to ensure Gas, Fire and Electrical Safety checks have been conducted annually with certificates provided to the tenant.

Decide in the lease who will conduct which safety check to help split the burden. A landlord could be responsible for the gas safety, where the tenant could be obliged to get the fire safety check.

For older commercial properties, the landlord should include how they will manage asbestos and any risks to the tenant under the Control of Asbestos Regulations 2012.

5. Break Clauses

Break clauses are a provision in the lease allowing the tenant to terminate in certain circumstances, with an agreed notice period. This is a common feature of commercial leases, and therefore, landlords should consider what type of break clause will be best for them.

If you are a commercial property landlord and wish to set up a lease for commercial premises, seeking expert advice on break clauses will help identify any issues that may arise upon termination.

Get legal advice with CWC

If you have any questions, would like some legal advice on your landlord obligations or need help drafting a commercial lease agreement, then please contact us today.

Commercial leases allow landlords to rent property out to tenants solely for commercial use, providing monthly revenue and occupancy in their property.