The commercial lease is a unique contract between the commercial tenant and the owner of the commercial unit. All commercial leases are different and there is no “one size fits all”. It is absolutely imperative that each party to the lease understand the terms and their implications. The following are some of the terms which may be included in a commercial lease:
- VAT – In addition to the rent payable by the Tenant to the Landlord, it is important at the outset to ascertain whether VAT is payable on the Rent by the Tenant. This could be a substantial cost to the Tenant and, if not considered at the outset, could have significant implications on the cash flow for the Tenant.
- Term –This is the length of time or duration which the Lease is to run. During the Term, each party is obliged to comply with the covenants and conditions contained in the Lease.
- Rent Review – The Lease will set out the amount of rent to be paid by the Tenant and the manner in which the rent is to be. Depending on the Term of the Lease, the rent may be reviewed. As of the 1st of February 2010, it is prohibited to have an upwards only rent review. The reviewed rent shall be an amount either less than, greater than, or equal to the rent payable immediately prior to the date on which the rent falls to be reviewed.
- Break Option– In some instances, either the Landlord or the Tenant may wish to have the option to break Lease after a number of years, subject to certain conditions having been complied with. Some commercial leases allow only the Tenant to have the break options while others may allow for a reciprocal break option. A break option legally entitles one party to break a lease before its expiration without adverse consequences.
- Termination Clause – A Landlord should have certain conditions in the lease, which if they occur, entitles the Landlord to terminate the Lease. One such reason could be if the Tenant falls into arrears on discharging the rent.
- Deposit – Some Leases require the payment of a security deposit by the Tenant upon the execution of the Lease.
- User – The Lease will define the use of the property by the Tenant. The use defined must comply with planning and zoning laws. The Tenant will only be allowed to use the property as defined.
- Stamp Duty – The stamp duty payable on the Lease is a charge payable by the Tenant. It is calculated at a rate of 1% of the average rent payable pursuant to the lease. There is also a €12.50 stamp duty payment on the counterpart lease and a further payment of €12.50 if there is a rent review clause in the lease.
Pursuant to the enactment and commencement of the Property Services (Regulation) Act, 2011 (the Act) a Property Services Regulatory Authority (PSRA) was established. The PRSA produces a Commercial Lease Register which includes information such as the address of the commercial property, the date of the Lease, the Term of the Lease and rent payable in respect of the property. The Act imposes an obligation on all Tenants regarding commercial leases entered into on or after the 3rd of April 2012, to furnish information regarding the Lease to the PSRA.
Considering entering into a commercial lease? Contact Associate Solicitor Mary McNamara, at Callan Tansey Solicitors LLP, who specialises in commercial property and who can provide expert guidance.