The dangers of informal lettings for commercial property

Informal commercial property lettings arise where there is no written agreement between the parties. This often happens when a landlord rents property to a business contact, friend or family member, or if the intention is for the arrangement to be short-term.

Solicitor Katie Hall from Woodcocks Haworth and Nuttall’s commercial property team explores some of the main risks associated with letting commercial property on an informal basis.

Responsibilities 

These situations sometimes arise when a landlord either doesn’t want to incur solicitors’ fees for putting an agreement together or feels a written agreement doesn’t seem necessary because of their relationship with the tenant.

The important question to ask is, what happens if something goes wrong? For example, what can be done if the tenant doesn’t pay their rent on time, or who is responsible for repairing the property?

With a written lease, the responsibilities of each party are clearly stated. This removes any uncertainty and avoids awkward conversations about what each party’s responsibilities are when there is nothing in writing. Matters such as insurance, repairs and paying for outgoings can often become matters of dispute without a written lease

Security of tenure

Commercial tenants running a business from a rented commercial property automatically have rights under the Landlord and Tenant Act 1954. These rights are known as security of tenure.

The rules mean that at the end of their lease, a business tenant has the right to a new lease upon similar terms to their current lease, meaning that they are legally entitled to remain at the property. It is possible to exclude these rights, but a strict procedure must be followed.

This is a significant risk for a landlord with an informal letting, as what was intended to be a short-term agreement can result in the tenant acquiring the right to remain at the property. It can then be very difficult for a landlord to retake possession.

Rent

Whether you are a landlord or a tenant, rent is a key factor to consider when renting commercial property. With an informal agreement, details such as rental increases and implications for non-payment of rent are often overlooked.

As a landlord, receiving rent is crucial to ensure that your investment is generating funds. A written lease clearly documents how much rent is paid, how and when the rent will be increased, as well as setting out your rights if the tenant fails to pay their rent.

As a tenant, rent is equally important, as it can be a factor that determines how profitable your business is. Without a written agreement, it can be difficult to dispute a rental increase.

Watertight agreements

The importance of having a written lease prepared by a solicitor cannot be understated. It is likely to save a significant amount of time and money in the future by mitigating a plethora of potential risks associated with renting commercial properties on an informal basis.

Whether you are a landlord or a tenant, this is a complex area of law that can have significant implications to both yourself and your business.

Katie Hall is a solicitor based at WHN’s Blackburn office. Katie specialises in commercial property transactions and advises clients on all aspects of commercial property law, including lease arrangements for commercial buildings.

Katie has vast experience acting on behalf both landlords and tenants including individuals, companies, partnerships and pension funds in leasing commercial property, and can guide you through the whole legal process. To contact Katie, call her on 01254 272640 or email [email protected]