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Heads you lose!

“Standard commercial full repairing and insuring basis”, “standard FRI terms”, “standard Scottish legal practice”.

All too often these and other similar siren phrases lure the unsuspecting and unrepresented tenant into agreeing to lease terms which do not really reflect the commercial reality of the market but represent instead what the landlord’s agent has been able to persuade a tenant, perhaps taking on their first commercial property, are standard, even immutable, terms.

Although Heads of Terms are not legally binding, it is much harder to achieve a good and fair result for a tenant if Heads of Terms exist which are strongly biased in favour of the landlord which will inevitably be the case if the tenant has not had any independent advice.

  • A well advised tenant will not take on a full repairing and insuring obligation for a short lease term and thereby be responsible for all costs relating to the maintenance and repair of the property irrespective of the cause of damage. In a worst case scenario, a full repairing obligation could result in a hefty dilapidations bill at the end of the lease term. Instead, a photographic schedule of condition prepared on the date of entry will provide a visual record of the state and condition of the property when the lease commences. This will assist in limiting the tenants’ ongoing repairing liability.
  • The rent demanded by the landlord may well exceed the market rent and may represent no more than the landlord’s opening move. It is also worth noting that it is not standard practice for the tenant to foot the bill for landlord’s legal costs in concluding a lease. Do the Heads of Terms contain any tenant break options; rent concessions or even rent free periods?
  • The tenant may be also be faced with substantial service charge bills for the upkeep of the common parts of the building without receiving any real benefit – if this liability is not capped. Through the service charge, the landlord recharges to the tenant the cost of the works (organised by the landlord) for maintaining the common parts. A service charge cap will provide the tenant will some certainty on their financial exposure to the upkeep and repair of common parts throughout the lease term.

Remember the landlord’s agent acts only in the landlord’s interest. If you are taking on a new lease, consider employing your own agent to negotiate the Heads of Terms on your behalf. Do not agree to any terms without taking advice.

For further information please contact:

Jane Ramsay on 0131 226 8222 or Helen McGrath on 0131 226 8224

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