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How To Rent Your Commercial Property to New Business?

Question – I want to let commercial premises to a friend. It’s a new business so he wants to protect himself but starting up a company but I only want to let it if he’s the tenant! What can I do?

Answer – There are two points here (1) do you want to let to him personally because you want him on the hook for the rent etc? Friend or not this is a perfectly valid reason especially if the tenant is a new start-up company with no trading history and, presumably, not intending to offer up any deposit; or (2) do you want him as the tenant because you are only doing it because he is a friend?  Both are valid questions, both have different answers.

If you want your friend on the hook for rent, this is easy. All you need to do is, grant the lease to the company, and have your friend be a guarantor for the company’s performance of the lease.  If your friend wants to protect himself by not taking personal liability then perhaps a compromise would be to cap the exposure of your friend to say a year’s rent?

I want to let commercial premises to a friend. It’s a new business so he wants to protect himself but starting up a company but I only want to let it if he’s the tenant! What can I do?

The second point is also pretty simple to deal with although I have seen landlords advised badly on this. I have seen landlords insert a non-assignment clause in their lease believing that this prevents the tenant from changing. If the tenant is a Company this is not necessarily the case. If the tenant Company is subject to a share buy-out effectively you are dealing with the same Company, no assignment, but you are dealing with different controlling people, the buyers of the shares! The best way to deal with this is, you should have a break clause inserted into the lease stating that if your friend’s shares in the tenant Company fall below ‘x’ % you can break the lease. There is no reason why this wouldn’t be accepted and it is just a negotiation as to the relevant %. I would say 100% is too draconian on the basis he may want investment so perhaps 60-75% would be more suitable but I will leave you to negotiate this!

Content Writer​

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Last updated | 19 July 2023

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