Key Clauses in Commercial Leases

Cosgrove Gaynard Solicitors

Commercial Leases are lengthy documents and it is extremely important that both the landlord andtenant are fully aware of what the lease contains particularly in the case of a tenant where someobligations can be drafted to be quite onerous

Key Clauses in Commercial Leases 

INTRODUCTION

Commercial Leases are lengthy documents and it is extremely important that both the landlord andtenant are fully aware of what the lease contains particularly in the case of a tenant where someobligations can be drafted to be quite onerous. I have set out some brief points in relation to themain clauses which cause concern in a commercial lease:

RENT

There are a number of considerations to be had in relation to rent:

. Fixed amount or a percentage? Rent in the retail sector is increasingly being determined asa percentage of turnover or a basic plus percentage of turnover. The clauses around thisturnover rent can be quite complex and a tenant needs to careful regarding the calculationprovided in the lease.. Will Vat be payable in addition to the rent?. Rent free period (s). Rent reviews? Although upwards only rent reviews have been banned in relation to newleases careful consideration must still be had on the rent review provisions of a lease.

REPAIR CLAUSE

A commercial lease will contain a clause in relation to repairs of the property. There can be provisionmade for a fully repairing and insuring lease (FRI) which means that where a single tenant lets aproperty they pay for the full insurance premium and are obliged to carry out all repairs to theproperty.

The wording of this clause is extremely important as an obligation can be inserted into the lease to“put” the property into good repair.

Limitations can be placed on this repair clause with the correct drafting such as a limitation tointernal repairs only or the use of a schedule of condition at the commencement of the leaseotherwise this can be an expensive issue for a tenant.

INSURANCE

A tenant needs to be mindful of the insurance provisions in a lease. A tenant should be obliged toobtain employers and public liability insurance. In addition to this a tenant may be obliged to obtaininsurance cover for the property and provide a copy to the landlord however it is usually providedthat a landlord will insure the property and the tenant will pay the premium. Careful drafting isrequired from a tenant’s point of view in relation to:

– Calculation of the insurance premium in a multi-unit property– Waiver of subrogation rights– Reinstatement of the property– Payment of rent during insurance works

ASSIGNMENT AND SUBLETTING

A commercial lease will contain a clause whereby a tenant is restricted from assigning or sublettingthe property without the landlord’s prior consent. Again this is an important clause for a tenant tonote and proper drafting around this condition will ensure that the conditions upon which thelandlord will grant his consent are not too onerous.

BREAK CLAUSES

Break clauses often contain strict criteria which must be carefully reviewed by a tenant to ensurethat if such a break is required in the lease that he will be in a position to fulfil the criteria set out.Generally strict notice periods are contained in a lease and if carefully drafted by a landlords solicitorthe break option can be lost if the notice period is not adhered to.

TERMINATION OF LEASE

A lease will generally provide that in the event that a tenant is in breach of any of the covenants thelandlord can terminate a lease.

In the case of a breach of covenant a landlord will usually have to give the tenant notice of thebreach and time to remedy it before bringing an application to court.

It should be noted that the one exception is where the breach is failure to pay rent. A lease willusually contain a covenant allowing for the Landlord to peacefully re-enter a property if a tenantfails to pay his rent within a specified time.

As mentioned the above is a short summary of some of the main clauses in a lease however allleases are different depending on the clients and the circumstances involved. For further advice please contact:

Susan CosgroveCosgrove Gaynard Solicitors1 Westland SquarePearse StreetDublin 2

Phone : 01 234 0044 Fax: 01 234 0047 Email: info@cgsolicitors.ie

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