Commercial Lettings: Leases, Rent Reviews and Agency Duties
Core concepts
Commercial lettings questions test your understanding of lease structure and the agent's role. Key concepts include: lease length and security of tenure under the Landlord and Tenant Act 1954 (and how contracting out works); rent, rent reviews (upward-only, open market, index-linked) and review dates; service charges and insurance; repairing and insuring obligations; alienation (assignment and subletting); break clauses and their conditions; and dilapidations at lease end.
You should also know the agent's duties: marketing the property accurately, checking tenant references and financial standing, preparing a heads of terms for the lease, and ensuring stamp duty land tax and registration issues are flagged to the parties' advisers.
Traps in questions
- Assuming a tenant always has security of tenure - a valid contracted-out lease removes it.
- Confusing assignment (transfer of the whole lease) with subletting (granting a lesser interest).
- Forgetting that a break clause may be conditional on rent being paid and notice being served correctly.
- Treating a rent review as automatically downwards - many are upward-only.
Rule of thumb
For any lease question, identify the term, rent, review basis, alienation and break rights first; most answers follow from those five points.
Worked example
A five-year lease has an upward-only open market rent review at year three. The market rent has fallen. The rent stays at the passing rent, because the review is upward-only. If the review were open market without the upward-only wording, the rent could fall.