As commercial property agents, we would always recommend that a binding lease agreement is drawn up and agreed upon by solicitors acting on both sides, prior to any tenant taking occupancy.
However, we are also acutely aware that there can be a whole array of circumstances as to why such a document is not in place, and if that once ideal tenant has now become somewhat problematic, then the solution may have to be eviction.
It’s unpleasant. Many landlords simply don’t feel comfortable approaching their tenants to discuss their issues, despite the fact that they are totally within their rights to do so. The problem is that it’s often an awkward conversation, and if not handled delicately, can lead to an emotional confrontation.
In this article, we’re going to take a look at what steps need to be taken by a commercial landlord, should they need to evict a tenant. We’ll look at the differences between certain lease contracts, the rights of both landlord and tenant, and the processes that both sides need to look at, should eviction be deemed necessary.
Is it possible to have a commercial tenant without a contract?
Regrettably, this all comes down to one’s definition of a contact. A verbal lease is as legally binding as a written one – the only problem is that any dispute that comes out of it comes down to a simple “he said, she said” argument where there is little to no evidence on either side.
Fortunately, such an arrangement could really only come about if the commercial lease in question is under 3 years in length. Commercial property investors and, thereafter, landlords, typically set a minimum lease period of 5 years, although the most desirable lease period for commercial landlords in the UK is 10 years with a 5 year break clause.
For any commercial lease in excess of three years, it must comply with the requirements under S2 LP (MP) A 1989 and must be in writing, laying out all expressly agreed terms and signed by both parties.
But of course, many small businesses and start up operations would prefer to take shorter leases simply due to the uncertainty that comes with starting a new business venture. There are countless commercial property landlords out there that are willing to accept commercial leases that are less than five years, and this can mean that many arrangements between landlord and tenant are upheld on the premise of a verbal contract.
If the landlord accepts rental payments from the tenant, then an oral lease of less than 3 years will be taken as a permissible legal interest for the tenant.
Naturally, we believe that prevention is better than cure and would always insist upon written contracts for our landlords and tenants, but you’re here to seek advice on how to evict a commercial tenant where there is no written contract, and there are legal steps that can be taken.
Reasons to Evict A Commercial Tenant
The most obvious reason to evict a commercial tenant is their failure to pay rent. In the majority of cases, this will be because of a downturn in the business to the point where it becomes impossible to pay the rent, simply because the operating funds are not there.
This is, of course, unfortunate, and it’s also often the case that eviction of a commercial tenant is not actually necessary. Many tenants will notify their landlords of the problems that they’re facing and a new agreement will be drawn up between both parties whereby the lease is terminated early so that both parties can cut their losses and walk away. The commercial landlord is then free to return his property to the market in order to secure a new tenant.
Naturally there are no guarantees, and there is a possibility that the commercial unit in question could remain vacant for quite some time, forcing our commercial property investor to eat into his or her profits in order to maintain the mortgage payments.
Sadly, in other instances, tenants are not so practical or bold, electing instead to simply shut up shop and disappear. A forward thinking commercial property investor will have taken out an insurance policy on the property which covers such eventualities so, whilst it is inconvenient, it does not necessarily spell a financial disaster.
But non payment of rent is not the only reason a commercial landlord may need to evict their commercial tenant. When a commercial lease is drawn up, it outlines what sort of business will be operating on the commercial premises and there will be clauses which state that a deviation too far from the originally intended purposes will result in forfeiture of the lease.
And then, much as is the case within the residential property market, there are commercial tenants who will undertake illegal activity or, even if not acting illegally, will not respect the terms and conditions of their tenancy agreement – causing damage to property which will prove expensive to repair when preparing to entice new tenants to the building.
The Rights of the Tenant
Naturally, tenants have rights. From the moment they hand over their first rental payment to their commercial landlord, a legally binding agreement is in place, even if there is absolutely no paperwork – a situation which, again, we would strongly advise against ever being allowed to come about.
The nature of the agreement, and how long it has been in effect, will mean that the tenant may still have a number of rights in accordance with the Landlord and Tenants Act of 1954. We say ‘may’, because the very nature of a verbal agreement is the difficulty in enforcing any aspect of them should a dispute between landlord and tenant ever arise.
We’ll not going into any specific details of the Landlord and Tenants Act as it is a legal document and this article is merely meant to offer advice. Ultimately – and this is a point to which we will return later – the best, and indeed safest way to evict a commercial tenant without a lease is through the courts via a solicitor. Taking matters into one’s own hands is strongly ill advised.
We will, however, touch on one specific right of the commercial tenant, and that is their right to appeal for relief from forfeiture. After the courts rule that the lease has been forfeited, the tenant will have 28 days to make right any issues surrounding the rent or the property itself – essentially to remedy the situation which caused them to be threatened with eviction in the first place. If they are unable to do so, then they will need to vacate the premises.
Naturally, once such proceedings take place, the tenants will usually make a point of coming to an arrangement with the commercial landlord in order to come out of their lease agreement early. The landlord will be quite likely to accept, as they’ll want to avoid seeing a repeat of these problems, preferring instead to let their tenants go, swallow some of their losses and rent their commercial unit out again to a new tenant in a stronger position to meet the terms and conditions of their commercial lease.
In addition, a lesson will have been learned here on the part of the landlord that a written contract is vital when letting out a commercial property.
So What Possible Reason Would Anyone Accept a Commercial Rental Agreement without a Written Contract?
By now, we hope we’ve made it clear that verbal contracts – whilst still legally binding, are an incredibly bad idea when it comes to letting commercial property – both from the perspective of landlord and the tenant.
So are there any positive reasons as to why some many commercial tenants are currently renting property without a lease? Well there is one, and that is that a verbal lease affords both parties a great deal of flexibility. Changes can be made to the so called Terms and Conditions of the lease at very short notice.
Tenancy can be extended quickly, which is good news for the landlord, naturally. Changes in the operation of the business itself might be necessary, and a written agreement might restrict those changes, meaning an expense in terms of both time and solicitors’ fees in order to draw up a new contract.
Commercial landlords of smaller business units that often serve as incubators for start up operations can often reap the benefits of this level of flexibility. Their tenants are unlikely to need the commercial premises in question for long periods of time. Their hopes are that the business will succeed and therefore expand to a point where they’ll want to move on to a larger unit. Naturally, many enterprising commercial landlords will own a portfolio of property and will therefore be in a position to continue charging rent to their successful tenants on a longer lease under a legally binding, written contract.
Of course, there is another side to that coin in that many start-up companies fail. As a commercial landlord, a verbal agreement means that the tenant in question can simply shut up shop and move on – there is no need for the unpleasantness that comes with evicting a commercial tenant without a lease, and the property will be in a condition to accept a new tenant in next to no time, hence the landlord will minimise their losses.
The Eviction Process
Eviction of a commercial tenant is a matter for the courts. The easiest way to start the process of evicting a commercial tenant is to file for a Possession Claim from the County Court. The Government has an online Court and Tribunal Finder and you’ll need to find the court which is closest to the commercial property itself.
Once filed, the Court will set a hearing date and the commercial tenant then has 14 days in order to either file a defence against your claim or to apply from relief from forfeiture, which we mentioned earlier in this article.
Again, whilst there is plenty of information on line on how to file for a Possession Claim, it is still recommended that you employ the services of a solicitor with expertise in such matters.
The alternative route, whereby the commercial landlord hopes to avoid involving the courts at all, is that of peaceable re-entry. What this means is that the landlord gains access to the property – either directly or through the use of bailiffs, and changing the locks so that the tenants are unable to gain access.
There are two things to keep in mind here. The first is that if the forfeiture is deemed as unlawful, then the commercial landlord could be found guilty of trespassing and causing damages – both criminal offences.
Second, breaching the property by means of peaceable re-entry is only an option when the lease is in forfeiture due to non-payment of rent. Should there be another reason why eviction is deemed necessary, and these have been mentioned earlier, then the commercial landlord is first required to serve notice to their tenants. This is all explained in Section 146 of the Law of Property Act 1925 – Restrictions on and relief against forfeiture of leases and underleases.
It is generally recommended that a commercial landlord employ the services of a bailiff in order to carry out peaceable re-entry. Certain conditions should be taken into consideration:
- There should be no one there on behalf of the tenant who will block or oppose entry.
- If there is any threat of violence, then there is a risk of an offence being committed
- The commercial landlord must be satisfied that the property can be entered peaceably - as indeed the name would suggest
- Changing the locks sends a clear and unambiguous message to the tenant that their lease has been forfeited and that they are required to vacate the premises, effective immediately.
- Notice must be left in a prominent location which advises the tenant that the locks have been changed, the date on which this was done, the reason for this and finally, confirmation that the lease is terminated with immediate effect.
It should be clear that the decision to evict a commercial tenant is never one to be taken lightly, and nor are the steps that must be followed in order for the commercial landlord to do so lawfully.
This is why we would recommend the services of both bailiffs and solicitors to assist in such matters and at Prideview Group, we are in a position to introduce you to any and all of the experts that you’ll need. Get in touch today...