A stay in a good hotel is a great way to relax and is well worth the money if you enjoy it. If you book for two nights you would not expect to be presented with a bill for four nights when you check-out.
One would think that the same logic applied where a business is leasing premises for a fixed term. However, this is not always the case.
If the lease is for one year then you should pay rent for one year and not two. Alternatively, if your plans change you may want to take advantage of being able to terminate your lease earlier than originally intended and not face a financial penalty for doing so.
John Smart is a partner at law firm Ledingham Chalmers and heads up its team of commercial property lawyers in Inverness. He explained that the termination date in a commercial lease is only legally binding if the tenant or landlord has served formal notice in advance and that failure to serve timely notice could prove an expensive error.
He said: “There are strict time limits for serving the required notice. If a notice is not served the lease runs on, usually for another year and then from year to year until a notice is served. This will be very unwelcome for a tenant whose premises are surplus, as it will have to pay rent for a further year. The financial implications could be a disaster if the rent is high.”
A recent court case has made life a little easier for tenants of large commercial sites exceeding two acres following a recent case, Lormor v Glasgow City Council.
Mr Smart explained: “The notice period for commercial sites of two acres or more has traditionally been thought to be six months or a year depending on the length of the lease.
“But now, a tenant of two acres or more will not have to pay a whole year’s extra rent for premises they do not need so long as they serve the required, and now reduced, 40 clear days.
Following the case ruling, only landlords must serve a notice to quit of six months or a year prior to the scheduled expiry date.
“This makes things a little more complicated for landlords,” said Mr Smart.
“Prior to this decision landlords had more long-term security about their tenants movements. They could plan six months to a year in advance and would have the same amount of time to find new tenants from the time they served their notice.
“With that now reduced to 40 days it could make things more challenging for them. Landlords may have to consider adjusting their leases in the future to provide for longer tenant notice periods – if the lease is specific then that will over-ride the 40-day rule.
Mr Smart added: “Whatever the notice period, great care needs to be taken to serve any termination notice correctly and within the prescribed time limits. Leasing commercial premises is not like booking a hotel room and there are traps lurking for the unwary,” he added.