Lease Disputes – Frequently Asked Questions
Do I need to get legal advice before entering a commercial lease?
Your solicitor is equipped with the knowledge of what to look out for and what pitfalls to foresee in a commercial lease. When a person enters a lease situation they are usually embarking on a new venture, be it a new business or the extension of an existing business. It is a positive time and the experience is filled with positive outlook. Our duty as solicitors is to examine the covenants and conditions the person will be binding themselves into. We explain the different options available and what absolutely should be negotiated on. We explain the ambit of the lease itself and what it means for the your business into the future. The importance of receiving proper and thorough legal advice at the outset rarely exhibits itself unless or until something goes wrong. All aspects of this important contract should be carefully and properly examined. We may raise issues we have come across that you may never even think of. It is better to lean on the experience your solicitor has collectively garnered than to blindly walk into a legally binding arrangement which may seem so simple and positive initially. We would strongly advise therefore that the lease is thoroughly checked before it is entered into and that you receive appropriate legal advice. We pride ourselves on thorough attention to detail on all leases passing through our offices.
Should I form a company?
Many people wonder whether they should set up a business through a limited company. It is certainly a good idea in many respects. A limited company is a ‘person’ in law. That means it stands alone. It can sue and be sued. Its powers are set up under its memorandum of association. It is guided by its directors and its shareholders hold the financial interest in it. It is not however without stringent responsibilities including filing of annual returns annually, acting in its best interests at all times and ensuring proper accounting and upkeep. More general information on these matters can be looked up on the Companies Registration Office website: www.cro.ie..
If I form a company am I personally without liability?
The short answer to this question is no. Firstly a landlord or a bank may insist on a personal guarantee for any lease or banking facilities you enter into. A personal guarantee means personal liability and you should always check any documentation you are requested to sign at the outset with your solicitor. Secondly, as per our answer to question 2 above the liability an officer has to a company is extremely strict, and even more so in recent years with the introduction of the Office of Director of Corporate Enforcement (see www.ODCE.ie) . Therefore, if a director fails to act in the best interests of the company the corporate veil (ie the limited liability) may be pierced (or ‘lifted’) and potentially the officers of that company could be held accountable. Forming a company and the maintenance of it therefore is a responsibility in itself.
How do I get out of my lease?
If you sign up to a lease for a term for example of 4 years and nine months, or the longer standard of 35 years, or any other term of years, you are bound into that lease for the term you agreed and obliged to pay the rent for the entirety of that term. Generally you cannot vary the lease unless you reach a new agreement with the landlord. The lease is subject to rent review at specific dates during the term as may be specified in the lease. For leases executed after 28th February 2010 rent review clauses in leases must be based on market principles only.
My business is not doing well, surely in those circumstances I can exit my lease?
The lease is a binding agreement which stands regardless of how well your business performs. Many people do not understand this and it is a question we are often asked. When entering a lease of in a tenant will think that the payment of rent is contingent upon the business doing well but is not. Therefore in a stressful time where a business may be under pressure a landlord may refuse to even negotiate with the tenant and may not be willing to reduce the rent. It is for this reason at the outset legal advice should always be obtained. Your client your solicitor will negotiate break clauses on the lease in anticipation that you will need to safeguard whether the business does well into the future. It is for these reasons that are solicitors advice is crucial in explaining to you the ambits and responsibilities of the lease.
My landlord will not negotiate on the existing rent in the current poor economic climate, what can I do?
Depending on the wording of the lease, you may be entitled to refer the matter to arbitration.