What a Lease Is

1.1Commercial leases in one paragraph

A commercial lease lets a business use a building, or part of one, for a fixed number of years in return for rent. This workbook follows one lease of one office floor, from the first offer to registration. You are a trainee solicitor at Harland Weir LLP in Leeds, and you act for the landlord.

1.2Why businesses rent instead of buying

Even a company that could afford to buy often prefers to rent:

• Its money stays in the business, not in a building.
• It can move, grow or shrink without first selling property.
• It does not carry the risk that the building falls in value.

Landlords are often investors, such as pension funds and insurers, who want steady rent for many years. Others own more space than they need for now, and let the rest until they need it. The landlord in this workbook is one of those.

1.3The deal in this workbook

The landlord is Fellgate Cycles Limited, which makes electric bicycles. Its site in Leeds, Beckside Works, includes a two-storey office block. Fellgate's staff fit on the ground floor, and it expects to need the first floor in about ten years, but not before.

An empty floor earns nothing. Fellgate bought the site with the help of a bank loan, and rent from the first floor would help pay the interest. So Fellgate will let the floor on one condition: when the lease ends, the floor must come back. Chapter 2 shows how the lease does that.

The tenant is Linnet Studio Limited, a design agency that is growing fast and has outgrown its desks in a shared office. It wants its own front door and years to grow, not months. It wants to fit out the floor as a studio, with its own furniture, lighting and layout. It also wants a way out if the floor stops fitting.

Linnet makes its offer through Fellgate's letting agents, the firm Fellgate pays to find a tenant. Office rents are usually priced by floor area, and 400 square metres at £150 a square metre is £60,000 a year.

The offer is marked subject to contract and subject to lease. That means nobody is bound until the lease itself is signed and exchanged. Either side can still walk away or change the terms, and owe the other nothing.

These are the parties and your own team:

Each firm of solicitors acts for one client only, never for the deal as a whole.

1.4What a tenant gets when a landlord lets one floor

When a landlord lets one floor and keeps the rest of the building, it grants a lease of part. The lease must draw a clear line between what the tenant takes and what the landlord keeps. That line decides who repairs what, and who pays.

The usual line runs along the surfaces, so the tenant takes the inside of its space: the plaster, the floor and ceiling finishes, the doors and the glass. The landlord keeps the shell: the structure and roof, the outside walls and the window frames. It also keeps the shared parts, such as the hall and the stairs. It keeps all of those in repair and recovers a share of the cost from the tenant.

Clause 1.1 draws that line by defining the Premises, the part of the building let to Linnet:

Two phrases do most of the work. “The inner faces of its walls” means Linnet takes the plaster, not the brick behind it. “The Service Media that serve only the first floor” are the pipes, wires and drains that serve Linnet alone. Everything else stays Fellgate's, and clause 2.4 lists it.

A tenant on an upper floor also needs rights over the landlord's land. Schedule 1 gives Linnet the right to use the hall, the stairs and the yard, and to park in eight spaces. Clause 2.1, the grant, hands over the floor and these rights in one sentence:

“With full title guarantee” is Fellgate's promise that it has the right to let the floor. “For the Term” is the fixed number of years. “The Tenant paying the Rents” is the price: the rent itself, plus Linnet's share of the running costs and of the insurance. The term and the rents are set out on the front page of the lease, called the Particulars.

1.5From first offer to registered lease

A letting like this one follows eight steps. It starts with the heads of terms, a short paper from the letting agents. It records the floor, the rent, the length of the lease and the main terms. It is not signed or binding, but it tells the solicitors what to draft.

Steps 4 and 5 are needed here because this lease is contracted out and Fellgate has borrowed against its site. Many lettings need neither. Fellgate's loan is secured by a legal charge, a mortgage, over the whole site. The charge says Fellgate may let part of the site only with the bank's written consent.

A lease of more than seven years, like this one, must be registered, and takes full effect only once it is.

Signing and completion are two separate moments. Fellgate signs the lease, and Linnet signs an identical copy called the counterpart. Before completion, each firm sends its client's signed part to the other firm, to be held undated. At completion the solicitors agree by telephone to date and release the two parts, so each side holds the part the other signed.

Nothing binds until the lease and the counterpart are exchanged.

1.6Your job

Your job is to keep the file in order. That is the deal's machinery, not admin, because a wrong date or a missing paper can stop the client getting its floor back years later. Nobody expects you to know landlord and tenant law on your first day. Everyone expects you to know where the deal stands.

• Keep a one-page deal sheet: the parties, their solicitors, the floor, the rent and the term.
• Head every email “subject to contract and subject to lease” until completion.
• Check each new draft against the heads of terms, starting with the Particulars.
• Track the papers needed before completion, including the contracting-out papers and the bank's consent.
• Put every date in the diary as soon as it is fixed.