Jargon Busting – Demystifying Commercial Property Phrases
Posted on January 30th 2024
Here at Oliver and Co Solicitors, we pride ourselves on providing straightforward legal advice that is easy to understand.
We know that commercial property contracts, documents and transactions are littered with legal jargon, and it is our job to make sure that you understand the terms used, so that you can make the best decisions for your business.
We also know that commercial property phrases are used during negotiations that quite often take place before we are engaged in a transaction.
We want to make sure that you know what some of the common commercial property phrases are, so that you feel more confident in negotiating terms, if you did decide to do this without obtaining initial legal advice and support from our commercial property team.
What does it mean?
Agreement for Lease – A contract between parties that intend to enter into a commercial lease as Landlord and Tenant at a later date, once certain events have taken place. Whilst this is not an exhaustive list, here are some circumstances when an Agreement for Lease may be appropriate;
- Where the Landlord has agreed to construct the property that the Tenant will then occupy;
- Where the Landlord has agreed to carry out certain works to alter or modify an existing property that the Tenant will then occupy;
- Where the Property does not meet the latest minimum energy efficiency rating required before the lease term can start, and the Landlord has agreed to carry out the works required to improve that rating;
- Where the Tenant needs to obtain planning permission to change the use of the property before the Tenant can lawfully use the property for its intended purpose.
An Agreement for Lease will contractually bind the parties to enter into the Lease once the required future event has taken place.
Alienation – A term used to describe a disposal of a Tenant’s interest in a lease of commercial property. The disposal could occur in one of several ways, such as;
- An assignment or transfer, such as a sale or gift, of the Tenant’s lease interest, to a third party;
- The grant by the Tenant of an underlease, of either the whole or part of the property (Sub-letting);
- The Tenant offering its lease interest in the property as security to a lender in respect of a loan or finance agreement.
Arbitration – A non-court/alternative method to resolve a dispute that may occur between parties who are subject to a commercial property contract. It may be appropriate to include an arbitration clause within a commercial property lease, where there are matters which, during the term of the commercial property lease, the Landlord and Tenant may not agree on, such as rent reviews or service charges. If provisions are made within a commercial contract, which allow a dispute to be referred to an arbitrator, then the arbitrator has the ability to resolve that dispute and their decision would be binding on both parties.
Assignment – An assignment is a transaction which transfers a right from one party to another. In commercial property it is commonly encountered when dealing with lease interests. Quite often, commercial property leases are for a fixed term (period of time) and the Tenant cannot simply bring the lease to an end by serving notice on the Landlord. However, there are other ways in which a Tenant could relinquish their obligations in a commercial property lease. One of those methods is by way of an assignment. This allows the Tenant to transfer its rights and obligations under the lease to another party. However, the Tenants ability to assign the lease will be governed by the conditions and clauses within the lease. The Tenant may need to obtain the Landlord’s consent to the assignment but before giving that consent, the Landlord may insist that certain conditions are first met. One such condition being that the outgoing Tenant first enters into an Authorised Guarantee Agreement.
Authorised Guarantee Agreement – A form of guarantee, which is often required by a Landlord before they will give consent to a transaction taking place, such as an assignment of a commercial property lease. By entering into an Authorised Guarantee Agreement, the outgoing Tenant will be guaranteeing to the Landlord, the performance of the incoming Tenant’s obligations under the Lease.
If you are the outgoing Tenant, this means that if the incoming Tenant does not comply with the obligations on them in the Lease, that you, as the outgoing Tenant will instead ensure that those obligations are complied with. If an outgoing Tenant is required to enter into an Authorised Guarantee Agreement before the Landlord will allow it to assign their Lease interest to a new (incoming) Tenant, then the outgoing Tenant will not be completely free of the obligations on the Tenant under the Lease. It is important for outgoing Tenants to understand the implications and risks of an Authorised Guarantee Agreement because it can subject them to continued liability, even after the lease has been transferred or assigned to another party, over which the outgoing Tenant has no control.
If you are a Landlord of commercial property, that is occupied by a Tenant under a commercial property lease, an Authorised Guarantee Agreement will provide you with an additional layer of security and may alleviate any concerns that you have of the new (incoming) Tenant being able to comply with the existing tenant obligations under the Lease. It will ensure that somebody is responsible for ensuring that the tenant obligations within the Lease are complied with or provide you with the ability to take legal action in respect of a breach of tenant obligations within the lease, against more than one party, thereby spreading and mitigating any risk to you.
We’re here to help!
At Oliver and Co, we always ensure that we provide straight forward, practical advice, in a clear, jargon free and understandable way.
We understand that commercial property phrases can be a minefield, so get in touch with our team today on 01244 312306 and let us guide you to safety.
Call and speak to a member of our team on 01244 312306