Landlord and tenant should, in theory, be a fairly straightforward business relationship – the use of premises in return for monthly rent. However, there are numerous pitfalls that await landlords, particularly those who don’t have that much rental experience. Our landlord and tenant lawyers in East London have a great deal of experience in acting for a number of commercial landlords who have come to us for help to resolve disputes between them and their tenants. Here are five tips on how to avoid falling into the main pitfalls.
1. Take a professional approach from the start. Even if you are renting premises to someone you know, it is still a good idea to ensure that everything is clearly documented in writing. This will prevent disputes at a later stage and will ensure as far as possible the smooth running of the business relationship. It is also recommended by the British Property Federation that professional advice is always taken when entering into a new relationship with a tenant – and that the tenant takes advice too – so that both parties know where they stand.
2. Make sure the tenant is in a position to pay the rent and costs before signing anything. Assessing a tenant’s ability to pay costs such as rent and service charges is an important part of the process and can prevent situations arising further down the line where there is unpaid rent or bills. Taking references is key here, from accountants, an old landlord, as well as any trade suppliers, and where the tenant is a limited company it’s a good idea to ask to see company accounts. A rent deposit of three to six months rent provides some coverage against loss if a tenant cannot pay, or damages the property and does not pay for the damage. However, if all the evidence points to the fact that the tenant may not be able to meet the costs then it may be preferable to find a different tenant.
3. Maintain the relationship. The British Property Federation puts great emphasis in its Code of Practice on the landlord and tenant dealing with eachother constructively, openly and honestly throughout the term. This includes promptly informing the other party if there are likely to be any difficulties fulfilling the lease and being considerate of actions that may have an impact on the other’s rights or business.
4. Insurance. It is usual for the tenant to pay the cost of insurance but either the tenant or the landlord can usually arrange the insurance (the lease should state who is responsible for this). Where a landlord is arranging the policy then terms should be competitive and if the tenant is a whole building tenant it is often also a good idea to allow them to influence the choice of policy if they want to. Whatever the situation, it is crucial that the terms of the chosen policy are made clear to the tenant from the start and where there is any material change to the terms this information also needs to be passed on.
5. Rent review. Most, if not all, commercial leases will contain a rent review clause that allows the rent to move – usually up. Changes to rent are a sensitive subject and it is generally preferable to link any increases in rental amounts to what is a market rent in order to ensure they are reasonable. Any rent review time limits, notice requirements, scheduled fixed increases, and the stated review periods should be noted and timetabled at the start of the lease to ensure steps are not missed that might invalidate a rent increase.
Landlord and tenant relationships can be smooth sailing where attention is paid to the details. These five steps above will set you on the right road to ensuring that you fulfill your side of the contract and enjoy good ongoing tenant relationships.