Common lease provisions

Question 1

What must the lease term be?

Answer 1

Determinate

Lease terms can be periodic or fixed.

Question 2

What is the common lease term for FRI leases?

Answer 2

Fixed

Question 3

What are typical commercial lease terms?

Answer 3

3, 5, 10, or 15 years

Lease terms depend on the business sector.

Question 4

Why have shorter and more flexible leases become popular?

Answer 4

• SDLT/LTT paid less on a shorter tenancy
• Business plans are often drafted in 5 or 10 year cycles.

Question 5

What is common about the term commencement date?

Answer 5

It is often earlier than the lease is dated

Tenants are not generally expected to pay rent for the unused period.

Question 6

What is a reversionary lease?

Answer 6

When the term starts after the lease is dated

Question 7

When does a lease term expire if it is ‘from and including’ a certain day?

Answer 7

The day before that day of the year

Example: 10 year lease from and including 24 Mar 2019, expires 23 Mar 2029.

Question 8

When does a lease term expire if it is ‘from’ a certain day?

Answer 8

On that day of the year in the relevant year

Example: 10 year lease from 24 Mar 2019, starts 25 Mar 2019, expires 24 Mar 2029.

Question 9

What are break clauses?

Answer 9

Can be landlord or tenant break, or mutual break

They may specify a date or be a rolling break.

Question 10

Why are 10 year leases with a 5th anniversary tenant’s break more valuable?

Answer 10

They offer flexibility to tenants

Landlords hope tenants will not use the break clause.

Question 11

How is rent usually calculated for commercial leases?

Answer 11

• Market rent
• No premium normally
• The rent in an FRI lease is usually expressed as a yearly figure but paid quarterly

Question 12

What are traditional quarter days based on?

Answer 12

Religious festivals

Examples include 25 Dec – 24 Mar, 25 Mar – 23 Jun, 24 Jun – 28 Sep, 29 Sep – 24 Dec.

Question 13

What are modern quarter days?

Answer 13

1st Jan, 1st Apr, 1st Jul, 1st Oct

Question 14

When is rent due if the lease is silent?

Answer 14

In arrears - for FRI leases, very common to have a provision saying that it is due in advance

The lease must specify how rent is payable and if VAT or other payments apply.

Question 15

What are long leases?

Answer 15

Leases common in residential settings, with a ground rent
- the first person to buy the property will also pay a premium