Reassignment of a Commercial Lease & Licence to Assign

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    Reassignment of a Commercial Lease & Licence to Assign

    Hello,

    Thank you in advance for any advice. My position is I am starting a new business and will be beginning my first commercial lease. I will keep this post as brief as possible and just include what is needed, please ask if there's anything additional that would be helpful. I would like an understanding of the likely legal costs that will be involved and common pitfalls I should be aware of.

    I am quite unaware of the legal structure for assignment of commercial leases and wish the situation could be simpler than it is. I have however been told by the landlord's agent this is the only way I will be able to proceed. The property is a three-story high street unit.

    The lease I am taking on is current leased to an estate agents, through a licence to assign. Therefore there are three parties, the landlord, the assigner, and the assignee. I will be becoming the assignee. I have asked the landlord if it is not possible for me to lease the building directly from the landlord but have been told this will not be possible. The current assignee and assignor are in similar businesses and know each other, I only know the assignee because I have met them to discuss taking the premises over from them. They are 3.5 years into the 5 year lease and I imagine they are terminating their lease due to business troubles meaning they cannot afford/validate paying the lease.

    My first two questions are: When the lease expires in 1.5 years will I have all the same rights to renew the lease under the 1952 Act that I would otherwise if I were a tenant directly with the landlord? I have a letter from the landlord's agent stating they will allow me to renew the lease in 1.5 years time and have no intentions to remove me. The letter also states that my proposals, to redevelop the site from A2 to A3 & A5 will be allowed by the landlord - is this legally binding or do I need a letter signed directly by the landlord? I have been informed such a letter is not easily obtained as there are three different landlords who all live throughout the UK and are in their 90s. That brings me onto another question, with all due respect, the landlords are likely to pass away given their age during my tenure, is this something that could affect me i.e. when the property is inherited or otherwise exchanges hands may the new landlord force any actions against me? Such as eviction for whatever reason or changes to the lease?

    I have been told it will not be possible to negotiate amendments to the lease. Reading the lease myself all appears standard, I will of course have a solicitor read the lease to ensure I am taking on a reasonable contract. Given they are not amending the lease and only explaining it to me - what should I expect the cost of this to be? What will the other solicitor's costs involved likely be? Such as (I presume I will need) a new license to assign and a new deed of assignment. The property is located in Lancaster, Lancashire if that affects the likely cost (I read in other forums that city of London solicitors cost a premium for example).

    Onto a different matter, the property has suffered leaks this week, appearing to be coming in under the roof. These leaks have stained walls, roof tiles and carpets throughout the property. There is a schedule of condition for the property and much of this says the property is fair or good. The current tenant has assured me all walls that are now stained will be repainted, carpets cleaned etc. which will restore the internals to the condition they are in the schedule. I suppose this is reasonable and I cannot ask anymore? I have also been told the leak will be repaired. They will be in the property until August at least so I will be able to check before signing the lease that any damage has been made good and the repairs to stop future leaks under taken.

    Going forwards, I believe I need to involve a solicitor, I have one in mind who happens to be a commercial leases solicitor who I met in a social setting, however I have never used the services of a solicitor before. Am I correct in understanding I should first get their advice on the contents of the lease, i.e. if there is anything in there that means it is a bad proposition to take on? I will then need to instruct the solicitor to contact the landlord's solicitor and the assignor's solicitors to negotiate a new licence and deed to assign. Is there anything else from a legal position I need to undertake?

    I believe there is little point in conducting a new schedule of condition as I have been told the existing schedule of condition with the lease is the one that will be referred to when the lease expires. Perhaps however I would be prudent to have a surveyor check out the building which would only serve the purpose of highlighting to me any issues with the building not in the current schedule which I would then become liable for. What is a reasonable cost for a surveyor?

    Many thanks,
    Chris


    #2
    "When the lease expires in 1.5 years will I have all the same rights to renew the lease under the 1952 Act that I would otherwise if I were a tenant directly with the landlord?"

    Presupposing the existing lease is inside LTA54, yes.

    "I have a letter from the landlord's agent stating they will allow me to renew the lease in 1.5 years time and have no intentions to remove me."

    I don't think the letter would be binding. a landlord is not obliged to communicate its intention in advance of statutory notice. The intention can only be at the date of the letter; circumstances might change. Also, you say the landlord is elderly so a successor landlord might have different intention. However, as i have said in answer to the first question, you would have renewal rights presupposing the tenancy is a qualifying tenancy within the meaning of Landlord and Tenant Act 1954.

    "The letter also states that my proposals, to redevelop the site from A2 to A3 & A5 will be allowed by the landlord - is this legally binding or do I need a letter signed directly by the landlord?"

    The letter is not legally binding because until the assignment is completed you are not the tenant. Under the lease, a licence to assign will have to be granted by the landlord which should also contain the landlord's consent to change the use. (Or a separate deed to vary the user in the lease.) Also, it is likely you will need planning permission for change of use.

    "the landlords are likely to pass away given their age during my tenure, is this something that could affect me…"

    What happens if and when the landlords pass away during your tenancy is that your tenancy is unaffected. Whether the beneficiaries or another landlord would have the same attitude as the current landlord is not something to assume. Any variaions to the existing lease would be by mutual agreement. whether a new landlord could 'evict' you depends upon whether you are in breach of covenant or if on expiry of the lease the landlord could oppose renewal on one or more of the grounds stipulated in LTA54 and oppose successfully.

    "I have been told it will not be possible to negotiate amendments to the lease." As an assignee, you would be taking over the existing lease. Whether it would be possible to negotiate amendments after the lease has been assigned to you (strictly, after the tenant's interst is vested in you) is a separate matter.

    :Reading the lease myself all appears standard"

    There is no standard form of business lease common to all commercial property. as you say, your solicitor should read it and explain anything you do not understand.

    "Given they are not amending the lease and only explaining it to me - what should I expect the cost of this to be? What will the other solicitor's costs involved likely be?"

    Your solicitor should advise you of the costs they would charge for what you would be instructing them to do. When the tenant applies to the landlord for consent to assign the lease to you, the landlord's solicitors or the landlord\'s agents will confirm the amount of costs required from the tenant and an Undertaking on Costs will be required before anything else happens. It is usual for an assignee to come to some arrangement with th tenant as to sharing the landlord's costs. the landlord's costs are normally payable whether or not the matter proceeds to completion.


    "The property has suffered leaks this week…"
    As assignee you step into the shoes so to speak of the outgoing tenant and become liable for the repair and decoration covenants in the lease regardless of the state the outgoing tenant left the premises in.

    "Am I correct in understanding I should first get their advice on the contents of the lease, i.e. if there is anything in there that means it is a bad proposition to take on?" Yes.

    "I will then need to instruct the solicitor to contact the landlord's solicitor and the assignor's solicitors to negotiate a new licence and deed to assign. " When yoi are ready to proceed, after having agreed things in principle with the existing tenant, the existing tenant would make the application to the landlord for the licence to assign. Different landlords and agents do things differently. i can only speak from my experience. When I deal with applications for licence to assign, usually what happens is that the tenant or tenant's solicitor has contacted my client direct. my client passes the request to me to deal with. the first thing I do is get an Undertaking on Costs for my fees, making it clear that if and when my client's solicitors become involved a further Undertaking on Costs would be required for the legal costs. Usually, I provide an estimate of what the legal costs are likely to be. I direct my questions to the tenant's solicitors in the first instance but say I have no objection to dealing with the prospective assignee's solicitors if preferred. After i have completed my enquiries and made my recommendation to the landlord, i communicate the decision to the tenant's solicitors. If consent is granted then I prepare and circulate heads of terns and the landlord's solicitors would be instructed. The pace thereafter depends upon the pace at which the tenant and assignee transact. Also, it depends upon what stage of the transaction the request for licence to assign is made.

    "Perhaps however I would be prudent to have a surveyor check out the building which would only serve the purpose of highlighting to me any issues with the building not in the current schedule which I would then become liable for. What is a reasonable cost for a surveyor?:
    Yes, prudent. Cost for a surveyor? Get some quotes and compare.

    Comment


      #3
      There are three rules for anyone taking a lease of commercial premises:

      RULE 1: Instruct a commercial landlord and tenant conveyancer
      RULE 2: Remember rule 1
      RULE 3: Do not forget rule 2

      Comment


        #4
        Hi Thank you for the replies they were extremely helpful and I apologise for only just replying, I had believe I already posted a reply with my thanks.

        I have receive quotes from three different solicitors so far and the prices quoted range enormously. The cheapest was 298 + VAT to handle the negotiations with the landlord and current tenant and to view the current lease and explain it to me, highlighting anything within it of particular significance, with the understanding it is not possible to make changes to the lease and therefore there will be no 'work' in terms of producing new documents or amendments to the lease. The second was effectively for the same services and was for £498 +VAT.

        The third quote from the solicitor I got the best impression from over the phone was (typically) the most expensive by some margin, quoting £950 to £1250 + VAT + up to £300 disbursements for any searches deemed necessary. Although they are the highest quote, they are actually closest to what I was expecting to have to pay. Any advice on the how reasonable these fees are would be greatly appreciated.

        I believe the two lowest quotes are low because they interpret the job as straightforward and limited to viewing the current lease and then advising me on it as necessary in addition to negotiating with the landlord and current tenant. Therefore when any additional work comes up, the price may increase accordingly.

        Whereas the most expensive quote I believe is for a service that will include everything that may become necessary in order to see the negotiations to completion.

        Contrary to advice received from rentreviewspecialist, the most expensive solicitor affirmed without doubt that the letter from the landlord's agent stating I will be allowed to renew my lease when it expires in just over a year is legally binding. This is potentially a very important point so any further advice on this would be greatly appreciated. In a worse case scenario, fitting out the unit could reduce the amount of time I actually trade from the unit to 12 months or less until the lease expires. Of course, to then be kicked out would be catastrophic in terms of disruption and cost of relocation.

        Will I need a new licence to assign? And if so what would be the cost?

        I have been advised the landlord's costs would usually be footed by the current tenant. Thus far no one has taken responsibility for them, which my solicitor advised she will negotiate on my behalf. This seems like a good deal to me and indeed as rentreviewspecalist stated, sharing would seem a reasonable alternative if the tenant does not agree to pay them in full. What should I approximately expect the landlords reasonable costs to be? I have been advised that in addition to the landlord's costs, the landlord's agent fees will be £250 to negotiate with all parties.

        Comment

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