The commercial property market has witnessed a substantial increase in the number of corporations and companies which are established for the purposes of a long-term venture in the last two decades. The overall amount of the cumulative finances required to lease a commercial property has also gone up. The modern venture institutions are mainly in form of pension funds and life offices. Their increase is a result of the introduction and development of more pension schemes which can be said to be occupational in nature. That is, their life expectancy is more than five years. Additionally, this period has also witnessed a massive change in the policies and guidelines that controls the investment activities of many institutions. This is mainly because the market forces in the lease management deem it fit to provide prominence to investment in real estate properties alongside the conventional areas of venturing like government bonds and securities and as well as in equity markets. The major contributing factor in the change of policies that govern and highlight practice in lease agreement in the continual inflation and the general belief that rental properties provides that best option to cushion against destructive effects of inflation to the economy. Moreover, the bloom in the commercial activities has also contributed to the demand in for real properties in terms of premises for rent dwarfing the supply of the same even as more business people expand and venture into new businesses (Matauschek, 2010, p. 5).
Because of the expansiveness and complexity of the lease markets, there is need to provide several options for tenants who want to lease commercial properties for different purposes and different lease periods. However, the constant in this whole activity of leasing commercial properties is that the value of commercial properties keeps appreciating irrespective of the nature and kind of business that goes on within it. It is therefore important for tenants who are looking for any commercial property to rent for a period of more than five years to factor in the elements that will impact on their businesses as well as the policies and legal frameworks available for such purposes. It is also important that tenants shop around to compare and contrast different options available in the market so that they can have the best offer that the market can provide. Definitely, landlords tend to harmonize the offer so that they look alike across a region or a country together with the governmental and other institutional requirements imposed on the land ownership. Nevertheless, a good research in the property market in the region that one is wishing to establish a commercial property will go a long way in ensuring that the property that is finally settled upon offer that best deal to the tenant (Francis, 2012, p. 66)
The process of finding a rental premises has evolved especially with organizations and corporations looking for premises which are located in prime areas for their business. In this regard, the lease market has witnessed development of legal structures and frameworks that seek to coordinate and control the way landlords and tenants associate with one another. Most of the structural systems available in the lease market are mainly aimed to ensure that each party plays its part as per the agreement or the covenant that they enter into at the start of the lease period (Bright, 2007, p. 40). Mostly, the structures are mainly concerned with issues of paying rent, maintenance and repair to the premise, the duration of the lease period, and a service charge. Others include the covenants that afford the landlord a considerable degree of control over alienation, and change of use and tenants’ alterations among other things. The Landlord and Tenant Act of 1954 provide a legal framework that outlines the contact and behavior of each party in a lease agreement. However, some leases are entered into without consideration to the provisions of Part II of the act but instead entrenches mutually binding clauses that are agreed upon by both parties. The institutional lease agreement is a form of a lease that is acceptable to a given institution such as a pension fund or insurance company in an investment venture. Most of the institutional leases available in the market can be described as leases with upward only rent reviews. This therefore means that the value of the premise which is rented appreciates with time and the tenant takes this into account while taking over the premise so that they are fully prepared to meet the increasing rental charges. It is important that this comes out clearly in the lease agreement to avoid conflicting encounters in the future between the landlord and the tenant (Senn, 2006, p. 15).
A number of different types of leases exist currently in the lease market. However, most of the leases have shorter period and thus can be expensive to the tenant if the deal has to be renegotiated after a period of five or ten years when the business or the institution may be hoping to operate in that area indefinitely. The break provisions allow tenants and landlords to terminate their lease before the expiry of their agreed fixed term. This break clause is exercised on a fixed date during the lease term this date is determined when the parties were signing the contract (Alexander, 1990, p. 22). The break clause gives the tenant an opportunity to break the agreement before the agreed fixed date if certain factors affect the tenant. A business may experience a dip in the market of its products prompting the company to seek new markets. There may also be increased operations cost that may force the business to relocate to a cheaper environment. This is therefore a very important consideration when the break clause date is being set so that the tenant is not forced to remain in a hostile business environment due to the binding clause. This clause gives the tenant long term security while at the same time it gives him flexibility incase problems arise in future. The tenant tries to make the clause as friendly to him as possible by reducing the preconditions set. The clause will include conditions to be followed before the break clause is exercised(Bright, 2007, p. 50).
The laws that govern the relation and contact of the landlord and the tenant have been around since middle ages in England. These laws defined the contact that the landlord is expected to have with the tenant including the payment of rent and maintenance and repair services that the landlord is expected to do on the property (Morris, 1999, p. 15). With such developments, there has come more clauses to be included in the agreement between the landlord and the tenancy on the conditions on the use of the rented property including the lease period, the date for payment of rent, the service charges that the landlord expects from the tenant, and the services for repair and maintenance that the landlord is expected to give to the tenant. The evolvement of landlord and tenant agreement differs from one country to the other but the English laws which were developed several hundreds of years ago and the part II of the Landlord and Tenant Act of 1954 has formed a precedent for many landlords and tenant laws in many countries around the world. The landlord tenant relationship in any country in the world is defined by existence of leasehold estate. These leaseholds are meant to safe guard the interests of both parties involved in the deal. The law recognizes the differences between commercial and residential leases. This law clearly defines the role of the landlord and protects the tenant from exploitation or harassment(Alexander, 1990, p. 32).
The Landlord and Tenant Act of 1954 give tenancies to which it applies. These tenancies are subject to the provision of this Act, this Part this Act applies to any occupancy where the property compromised in the tenancy is or includes premises which are occupied by the tenant and are so occupied for a certain purpose whether carried out by him or his guests. Moreover, the Part also has an expression business to encompass trade, employment or profession. It also consists of all activities carried on by a corporation or organization or individuals (Francis, 2012, p. 76).
While leasing a commercial property could seem as a straightforward and uncomplicated business transaction, the possibly of unexpected situations to arise during the time of occupancy is very high. As such, it is important for both the tenants and landlords to have a formal agreement whether legally or as private arrangement to provide a channel through which such situations could be handled. The institutional lease agreement provides a set of approaches to circumstances such as bankruptcy of either the landlord or the tenant and ways to address them. In addition, it is important that the tenant carries out a comprehensive analysis of issues to do with the space acquisition timeline, office needs, comparative analysis of different available leases, and the cost of occupancy of a rental premises for a period extending beyond five years versus the cost of purchasing the same property at the time. A careful analysis of these costs may reveal that buying a premise would be cheaper in the long run when compared to the costs incurred in service charges and those of repair and maintenance. Renting a commercial property for whichever purposes bestows upon the tenant legally binding responsibilities which are enshrined in the lease. For instance, the tenant must first carry out the assessment on the health and safety of the property before agreeing to settle in the premise and take actions to remove any hazardous things within the vicinity of the premise (Morris, 1999, p. 35)
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It is essential to the tenant to carry out such analysis especially when it is placed in the lease because a failure to do so will bring problems in the future between the landlord and the tenant and even with the local authority within the area. The institutional lease thus requires the tenant and the landlord to scrutinize every detail of the lease document to ensure that every clause is reasonable and agreeable with both parties. In many circumstances, institutional leases require tenants to be responsible for the general safety of the premise in terms of electrical equipments related to the premise. Equipments such as gas cylinders must also be maintained according to the specifications of the manufacturers. The tenant is obligated by law and agreement with the landlord to pay rent for the use of the property in due time to avoid dealing with arrears. It is also upon the tenant to ensure compliance with the tenants covenant to maintenance the property so that the premise is returned to the landlord at the end of the lease period in a good condition. This can explicitly be spelled out in the lease agreement and the tenant signs against such condition (Zankel, 2000, p. 11).
Moreover, it is also the duty of the tenant to ensure that the premise is vacant before successful exercising of the break right by the tenant. These conditions must be fulfilled before the break clause is exercised. If any of the agreed conditions is not fulfilled, it denies the tenant the right to exercise the clause. These conditions are meant to shield the landlord from losses that may arise due to failure by the tenant to pay rent or destruction of the premise or landlord’s property that was in the premise. The tenant is obligated by law and agreement with the landlord to pay rent for the use of the property in due time to avoid dealing with arrears (Geltner, 2007, p. 35). It is also upon the tenant to ensure compliance with the tenants covenant to maintenance of the property so that the premise is returned to the landlord at the end of the lease period in a good condition. This can explicitly be spelled out in the lease agreement and the tenant signs against such condition. It is also the duty of the tenant to ensure that the premise is vacant before successful exercising of the break right by the tenant. These conditions must be fulfilled before the break clause is exercised. If any of the agreed conditions is not fulfilled, it denies the tenant the right to exercise the clause. These conditions are meant to shield the landlord from losses that may arise due to failure by the tenant to pay rent or destruction of the premise or landlord’s property that was in the premise (Randolph, 2012, p. 18).
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The institutional lease provides both the landlord and the tenant with an opportunity to go over the lease document and formally agree on the clauses therein. Unlike the other informal short-leases available in the market, institutional leases must be understood from the beginning to the end. This is not a simple work as some lease documents may have hidden clauses which when interpreted by professionals could have implications to either of the party. Thus, it requires that good business practices are applied including scrutiny and analysis of each clause and holding consultation just to ensure that the parties understand what is contained in the lease. It is also important to ensure that the lease that is agreed upon is in tandem with the needs of the business and also determination of the square footage of the business’ requirements in terms of space and other amenities (Randolph, 2012, p. 54). The institutional lease factors in other elements like future expansion of the business and whether the landlord will have limitations to such expansions. It also provides a method of property comparison as related to the market survey and allows the tenant to develop legal processes such as formal request for proposal to the landlord in case of a change in the provisions of the lease after a certain period. Similarly, institutional leases provide ways for negotiations between the landlord and the tenant and also in analyzing matters of significance as relates to the use of the premise(Hill, 2001, p. 50).
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Institutional leases provide a number of advantages to both parties over other types of leases. Whereas a lease such as fixed end date lease may seem advantageous to the tenant because a termination notice is not required at the end of the lease, the tenant many not be in a position to move when the lease ends and therefore the landlord does not require to give a notice to evict the tenant in such circumstances (Matauschek, 2010, p. 18). In institutional leases, such matters are often taken care of in the initial stages and thus empower the tenant to carry out their businesses without fear of disruptions in circumstances such as bankruptcy. The only thing provided for in a fixed end date lease is that in cases where the lease ends while the tenant was still in the process of carrying out their business, it is upon the landlord to either accept rental payments and have the lease normally proceeds in form of a month-to-month tenancy with rules similar to the expired fixed end date lease. In other cases a new lease may be signed or an eviction proceeding started against the said tenant. These are the only provisions in this type of lease. It thus, may not be good for a long-term of a commercial property (Jeffrey, 2012, p. 67).
The other type of lease is the fixed number of time lease. The time can either be weeks, months or years. This lease is advantageous also because it does not require issuing a notice of evacuation. It provides clauses that allow signing of a new lease that will require the tenant to pay rent on a regular and agreed time. However, the disadvantage that termination period can arrive at a time when the business is doing partly and the landlord will expect the tenant to evacuate and leave the property with regard to the prevailing conditions. A periodic lease continues indefinitely until either of the party decides to terminate it through a notice. The landlord has an upper hand because he can decide to raise the rent without consultation with the tenant and the tenant is expected to comply, failure to which he may be evicted from the premise. Institutional lease requires that an increment to the charges must be discussed and agreed upon by both parties (Brown, 2009, p. 30).
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Because the tenancy of Emporium (UK Holdings) Ltd was based on a license with another tenant, the provisions of Part II of the Landlord and Tenant Act will not be applicable in this case. One of the first steps to be undertaken is to understand the type of lease that was entered into in the first place and determine the clauses that defined the manner of exit by the tenant. As a result of the lease being initially given to a different tenant, it would also be important to ascertain the party to which the dispute relating to the equipment in the premise relates with the first tenant or the second one. This information will be important in initializing legal actions to ensure that the damaged property is rectified in a manner that will satisfy both parties. However, it is also important to point out the issue to the store manager before exiting because this it will be essential in getting the full information as it relates with the damaged equipment. In a commercial lease management, different stakeholders have distinctive roles to play in pursuing the highlighted mission and objectives of the institution (Alces, 1995, p. 81)
Consequently, it is also important that each party as part of the stakeholders in strategic planning should ensure that repair and maintenance of damaged equipment in the premise is done in accordance with the relevant clauses that deal with such matters and ensure that they are brought to a reasonable conclusion before the termination date. Before being included in the strategic plan, tenants must understand the importance of having the plan and how it is going to be implemented in the process of implementing a development plan in a commercial property (Brown, 2009, p. 30). As the management surveyor employed by Bucks plc, it will also be necessary to establish the stability of the commercial property first in dealing with any emerging issues in relation to the use of property within a commercial property environment. The owners and tenants of the property can contribute to the handling of the emerging challenges and assist the involved team to execute the legal procedures as soon as possible. This will ensure that all matters relating to the repair and maintenance of the damaged equipments in the property are concluded(Bright, 2006, p. 7).
Moreover, it is also important the duration for the issuance of a notice of termination of a lease so that if this clause is violated then the management of Buck Plc has a legal right to sue Emporium (UK Holdings) Ltd for the bridge of the binding agreement that required them to issue a notice in a given period of time. Most leases require that the tenant issues a six month notice that they would terminate their lease and therefore give the landlord time to look into the matters of rent and repair and maintenance. This will assist in avoiding issues of expenses in implementing repair and maintenance that arise with the failure to implement them on time. There is also the need to identify any existing need and change within the operations of the facility. Availability of resources, commitment, and capacity are also important aspects in the successful implementation of a strategic plan (Geltner, 2007, p. 45)
In most cases, matters of this magnitude are handled by a team of experts who analyze the situation and advice the management on the best legal action to undertake. This team is constituted as a project team which is composed of experts and planners. It has the responsibility of ensuring that clauses within the lease are adhered to in the process of implementing legal matters that relates to the use of a commercial property. The committee is thus responsible for a number of roles including organizing the whole process of planning and scheduling and conducting regular meetings to discuss the process. It is also the responsibility of the committee to ensure that priority is given to the implementation of the strategic plan by enforcing attention to the overall aims and objectives as outlined in the strategic plan document. This will avoid shifting or changing the priority such as diverting the resources meant for the implementation of a facilities management plan to other matters at the commercial property. It is also important to have the values of the management board and the entire community reflected in the strategic plan(Reilly, 2000, p. 98). This is important because it will help to build a sense of ownership by the board and the community. They will thus commit themselves to the successful implementation of the plan. After developing the actual strategic plan, the facilities management committee will also be mandated to regularly review the progress in terms of the mission and vision statement of the facility. The committee also has the responsibility to monitor factors like trends, demographics, community, and technology in contemporary and best practices in facilities management which might impact in one way or the other on the successful implementation of a successful facilities management strategic plan (The Center for Commercial Real Estate, 2013, p. 9).
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The timing for the termination of the lease must be executed within the proper period as stipulated in the lease. This means that Emporium (UK Holdings) Ltd and Buck Plc must review the six months notice clause before the termination date so as to be able to provide the necessary exit requirement such the refund of the deposit money and other refundable amount that the landlord owes the tenant. It is important that the timing of the notice must come within the legal and agreed period of six months to the termination of the lease to enable Emporium (UK Holdings) Ltd to regain the deposited amount from the landlord. Failure to serve this notice will prompt the landlord to refuse to refund the amount deposited with him as the security because the tenant will have failed to follow the conditions as set out in the agreement they had with the landlord when making the covenant on the termination terms. It is assumed that the landlord is not oppose to the termination of the lease by Emporium (UK Holdings) Ltd and therefore will be willing to honor the agreement in the covenant over the conditions of the lease period and tenancy at the premise.The other step will be to consult the interested tenant in unit 7 and determine if he will be willing to enter into the new premise in the same condition without repair and allow them to use. However, the terms and conditions for the lease will be renegotiated first to ensure that the defective equipment in the premise is captured within the lease and the landlord agreeing to repair it after the tenant has entered the premise(Pawlowski, 2002, p. 17). Another consideration will be ascertained whether the equipment is likely to affect the business operations of the tenant who has expressed the willingness to use the premise. This will be important in ensuring the property does not remain empty even after the current tenant terminates the lease with the landlord.
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The advantages of these actions is that they will enable the landlord to follow legal procedures in ensuring that matters related to the repairing of the damaged equipment in the property are dealt with relevant parties. It also helps ensure that each party meets its obligations as relates to the lease. It will also enable the landlord to recover the costs associated with the management of the premise such as repairing it before the new tenant gets to use. However, the disadvantage is that Emporium (UK Holdings) Ltd is not legally bound with the lease because he was only licensed but not leased the property by Buck Plc. A correct procedure would be to look for the original tenant and find out with him how the costs associated with the use of the property and damages to the equipments inside the property can be recovered in the event that the property is actually repaired. Moreover, it is not guaranteed that Emporium (UK Holdings) Ltd will be liable for any costs associated with the repair of the property because they are actually exiting from the country and moving to a different country where different lease laws may apply (Matauschek, 2010, p. 12).