Rise in Commercial Property Investment Among the Wealthy

Property experts are reporting a rise in demand from wealthy investors for commercial property. They say wealthy clients looking for investments are moving away from residential property and investing in commercial which they see as capable of generating income while the residential market flounders.

Investing in commercial property will allow investors to benefit from the capital appreciation of the building as well as the rental income. And, while London remains a popular choice, demand for this type of investment is also being seen in other cities, which offer a lower initial cost and potentially higher returns.

Although commercial property typically provides long lease terms, it does however carry the risk of tenant security and the liquidity of their business.

Becki Beswick, commercial property solicitor at Lawson-West commented:

“Although commercial property investments are on the rise there are various factors which landlords and tenants need to consider, to ensure that the investment is a sound one, especially in relation to what they would like to happen at the end of the lease term.

From a tenant’s point of view they will want to ensure that they have security of tenure. This will require the lease being protected by the Landlord and Tenant Act 1954, or “the Act”.

This is particularly important if the tenant wants to remain in occupation at the end of the fixed term as the Act offers the tenant protection against the landlord wanting to evict them at that time, and also the right to apply to the Court for the grant of a new lease. It also restricts the amount of rent demanded under the new lease to the open market value.

However, under the Act there are grounds which enable the Landlord to remove the tenant at the end of the lease by giving the necessary notice. The grounds are as follows:-

• Tenant is persistently late with rent
• Tenant is in breach of the covenants under the lease
• The tenant is a sub tenant of part of the landlord's building and the landlord could get more rent by leasing the whole of the building rather than part
• Landlord intends to demolish or reconstruct the whole or any part and could not reasonably do so without obtaining possession 
• Landlord intends to occupy 
• Landlord has offered and is willing to provide or secure the provision of suitable alternative accommodation for the tenant’s requirements
• Tenant has failed to comply with repair and maintenance obligations.

On the other hand the tenant might want to bring the tenancy to an end at the end of the lease term in which case they can serve a notice to the Landlord in accordance with section 27 of the Act.  The lease might however have additional provisions relating to the termination of the lease by the landlord and/or the tenant which is known as the break clause and will be agreed between both parties.

The implications of a lease being excluded from the Act and not offering security of tenure, are that that the lease will expire on the fixed date in the lease (or earlier if any break right is exercised).The landlord will then have discretion as to whether a new lease is granted to the tenant.

It will also be of particular concern to both the landlord and tenant if the tenant’s business goes into liquidation. The landlord’s biggest concern will probably be that the tenant will no longer be able to pay the rent. The landlord will want to ensure that he can re-enter the premises and bring the lease to an end under such circumstances and also be able to exercise any right or remedy under the lease for the non payment of rent or any other breach of covenant by the tenant. This is something that will need to be expressed in the lease and also the terms on which the landlord can do this.

In addition to the above there are various factors which need to be taken into account when drafting a lease to ensure that the investment is a safe one. It is essential that the landlord and tenant obtain independent legal advice when granting/taking on a new lease or renewing an existing lease to ensure that the lease fits well with both parties’ future plans.”

For more information on any aspect of commercial property law, please contact Becki on 0116 212 1000.

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