That work (and our fees) will be classified by the length of the term offered to the tenant, with a short term lease being generally less than 5 years and longer-term leases being typically 10-25 years.
With a longer lease, the tenant is effectively acquiring the property and the lease will likely contain a quite onerous repair and extensive other covenants imposed on the tenant. By necessity, such documents can be quite heavily negotiated.
One of the main distinctions in such leases is whether it is classed as a full repairing and insuring lease (“FRI”) or an internal repairing and insuring lease (“IRR”). In the case of an FRI lease, the tenant is responsible for all repair and insurance obligations. With an IRR lease, the tenant is only responsible for internal repairs and insurance of the property as the landlord or a management company retains responsibility for the external walls and structure of the property. An IRR lease would be more typical if the property is just one unit in a multi-let property (such as one floor of a building) whereas an FRI lease would be more typical if the tenant is taking the entire property. The tenant may also be granted a right to a new lease upon the expiry of the lease.
Often, such lease documents are accompanied by a separate agreement for a lease setting out certain preliminary matters prior to the lease going live, such as setting out certain obligations upon the tenant/landlord to fit out the property to a particular standard before the commencement of the term or perhaps providing that the entry into the lease is conditional upon some pre-condition, such as planning permission being granted for the intended new use.
Whereas in the case of shorter-term leases, the lease will likely have less onerous obligations imposed on the tenant and the landlord may retain greater responsibilities to look after the property given that the tenant will not be investing as much to the property if they potentially could be leaving within a relatively short time. Typically, the tenants would be required to waive their automatic entitlement to a new lease upon the expiry of the term which would be triggered by being in possession for a continuous period of 5 years under statute.
- The typical stages of a commercial lease negotiation are as follows:
- Heads of Term agreed: the heads of a term will set out the key terms of the intended lease arrangement and are often negotiated by the letting agents and the principal parties before the solicitors may be instructed;
- Pre-lease enquiries and other due diligence: the tenant’s solicitor will raise various preliminary queries about the property for the landlord’s solicitor to answer. The pre-lease enquiries will include matters such as whether the landlord has ownership of the property; whether there are any 3rd party claims against the property; what is the planning status of the property; whether there are any environmental concerns; what service charges may apply; and whether there is adequate insurance in place;
- Negotiation of lease documents: the landlord’s solicitor will typically prepare the first drafts of the lease, agreement for lease (if any) and other ancillary documents for the tenant’s solicitor to review based upon the agreed heads of the term;
- Searches: the tenant’s solicitor will generally carry out standard searches against the landlord to verify that they are not the subject of bankruptcy/insolvency procedures; they are recorded as the owner of the property and planning searches;
- Execution of lease documents: once agreed, the tenant’s solicitor will arrange for the tenant to sign the documents and return them to the landlord’s solicitor for signing by their client;
- Payment of Stamp Duty: the lease or agreement for lease will need to be stamped at the appropriate rate of stamp duty of 1% of the average annual rent + €12.50 if there is a rent review clause (if any) + €12.50 for any counterpart lease; and
- Registration of Lease: the tenant is responsible for registering the key details of the lease on the Commercial Lease Register.
For more information on the entry into commercial leases and how we can assist with the same, please contact our office to speak with one of our commercial lease experts.