The benefits of an Agreement for Lease
By Fenella Eddell
Landlords and tenants of commercial properties may not be aware of the potential benefits of an agreement for lease. This is an agreement between a landlord and a prospective tenant to enter into a lease at some point in the future. They are commonly used in circumstances where there are preconditions to be satisfied before a lease can be granted, such as where:
- Premises have not yet been built or construction has not been finished;
- Planning consent is awaited;
- A tenant requires works to first be carried out to a property;
- A former tenant is still in occupation; or
- A landlord does not yet own a property or a tenant is not ready to move
There are a number of requirements to be satisfied in order to ensure that an agreement for lease achieves its intended purpose. Importantly, it must contain all of the terms of the lease that will be entered into (usually by annexing the agreed form of lease) and including ancillary documents, such as rent deposit deeds. It cannot simply be an agreement to agree the detail of the terms of the future; otherwise it could well be unenforceable. There are also minimum terms that need to be included for the agreement to lease to be valid.
Other considerations are whether the lease will exclude the automatic right of the tenant to renew the lease at the end of the lease term. If so, the relevant notices and statutory declarations will need to be served before the agreement for lease is exchanged. Both parties should also think about whether they require a long-stop date when the agreement will lapse if the relevant conditions have not been fulfilled, what the consequences of this would be and whether any time extensions would be allowed.
Agreements for lease therefore require careful consideration and drafting. However, landlords and tenants should not be put off by this, as they can give landlords security of a prospective income and tenants reassurance about the location, quality and cost of their future premises, allowing for more effective business planning for both.
Fenella Eddell is a solicitor in the property department at Barker Gotelee, Suffolk solicitors.