Negotiating the commercial lease – what is important?

Negotiating a commercial lease is sometimes referred to as a “ritual dance”, during which the landlord’s solicitor will submit a draconian first draft, which the tenant’s solicitor then amends beyond all recognition. During a lengthy period of negotiation, the parties finally reach a compromise. Landlord and tenant clients frequently find this frustrating. There is room for negotiation (and relevant case law) in relation to almost all clauses of a lease; but from a commercial point of view, some matter more than others. What follows does not attempt to identify every point that could be made during a lease negotiation. Instead, it focuses on those areas that are the most hotly debated by landlords and tenants as well as their solicitors – the issues that have a significant impact on the respective commercial interests of the landlord and tenant.

The code of practice for commercial leases in England and Wales (the “Code”)

The Code sets out recommended “best practice” for landlords and tenants negotiating commercial leases (but is not mandatory). It was produced by the Commercial Leases Working Group, which includes the British Property Federation, the British Retail Consortium and the Royal Institution of Chartered Surveyors. The second edition of the Code was published in 2002, in response to concerns expressed by the government that some leases appeared to be biased in favour of landlords and that some tenants did not appear to fully understand the impact of specific clauses. Some of the recommendations in the Code reflect common market practice. Others are more favourable to tenants than was common when the Code was published and have encouraged a change in market practice.