| As
well as checking with the local authority that his proposed
use is lawful, the tenant should make sure that the landlord
knows exactly for what he intends to use the building, and
that it is approved. It is important that a tenant considers
his future requirements here. It is very easy to change the
direction of a business and find you fall foul of your lease.
For example, a manufacturer may not at first consider that
he might want a cash and carry or factory shop division a
few years later. Alternatively, a tenant may want to dispose
of the lease to someone who wants to use the building for
a different purpose.
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The question of user is of course
more important in longer leases where the use is much more
likely to change over time. Solicitors for landlords who do
not have much property valuation knowledge, frequently fix
the use clause narrowly - perhaps with the thought that if
the tenant needs to change the use in any way he will have
to come back to the landlord, and perhaps pay a fee or more
rent for the privilege.
He misses the point however that at
a rent review the new rent will be calculated by reference
to the rack rent (then current rent) payable in the open market.
Clearly, a theoretical open market value would be lower if
the number of potential tenants is fewer. A landlord should
therefore think particularly carefully before imposing a use
restriction which limits a change to a use which in fact provides
a lower rental value than some other potential use.Generally
speaking, the wider the use allowed, the greater the rental
value.
If the lease is governed by the Landlord
and Tenant Act 1954, and most leases are, the tenant has a
right to security of tenure. This simply means that they have
a right to continue using the property and renew the tenancy
on the same terms so long as neither of the parties objects.
Under the new Regulatory Reform Order 2003,
a landlord can only refuse to continue the tenancy if the
tenant has done one of a few things (see our article on Security
of Tenure for full details). One example might be that the
tenant failed to make regular payments.
If the landlord is happy for the tenant to
continue in occupation under the terms of the original lease,
he should serve a ‘section 25’ notice to that
effect.
On a lease over seven years, it is now mandatory
that you make sure that it contains ‘prescribed lease
clauses’ at the top of the agreement. All Net Lawman
documents provide for this and explain how to complete the
clauses. The PLCs have been designed to speed up the registration
process at the Land Registry office.
When your business requires it's own premises
a decision must be made as to whether to lease or purchase
commercial property. If the answer is not immediately obvious
to you, here are some of the considerations:
Your calculations will be based on interest
rates and rates of return on property. Interest rates vary
according to the economic cycle and other factors. Rates of
return on investment in property vary according to the interest
rate cycle, and also to the type of business property. An
investor in a substantial shop property in the south of England
might expect a return of 5%, whereas an investor in industrial
property in the north of England may seek a return of 10%
or even 12%. This difference reflects the market's perception
of risk.
On a pure comparative cost calculation, you
should therefore set out the figures comparing the total cost
of being your own landlord, as against the total cost of someone
else being your landlord. If you are looking at a rent of,
say, £10,000 per year against a purchase at £100,000,
then you need to be able to borrow at less than 10% for the
cash flow effect of your purchase to be better than the cash
flow effect of a lease. (Ignoring capital repayments).
Leasing
| Drafting
a Lease for Your Rental Property | Change
the Terms of a Lease |
Negotiate
an Apartment Lease | What
is a leaseholder | Business
property lease |
Contents
of a Lease | Manage
Rental Property |
