Bahamas - Commercial Leases Explained

INTRODUCTION

1. A Lease is characterised by the land owner (referred to as the Landlord or Lessor) granting exclusive possession of the property to a Tenant (often referred to in a Lease as a Lessee) for a fixed term at a specified rent. Whilst a simple document incorporating these issues signed by both parties would constitute a Lease, leases are generally lengthy documents which try to regulate the relationship between the Landlord and the Tenant as carefully as possible. The parties need to be fully aware of what they contain to fully understand their respective obligations. Particularly for a Tenant these obligations can be onerous. The following is a very brief consideration of the main items usually considered in a commercial lease.

RENT

2. Whilst the question of rent should be simple, there are a number of issues which may have to be considered: is there to be a rent-free period granted to the Tenant to allow them to do works to the property; is there to be a rent review? All of these issues require consideration and indeed careful drafting. For example in respect of rent reviews it needs to be clear as to how the property will be valued on rent reviews so that the Tenant pays the reviewed rent on a basis appropriate for the type of property and the type of Lease.

REPAIRING AND INSURING OBLIGATIONS

3. Commercial Leases are usually full repairing and insuring (FRI) Leases. This means, for example, that if a property is a single unit the Tenant will normally have to arrange insurance and pay the premium and arrange and pay for all repairs to be carried out to the property.

4. An obligation to repair is also interpreted as an obligation to put a property into good repair so that the Tenant will have to ensure that the property is properly maintained and decorated. This can be expensive for a Tenant and advice on these issues is required at the beginning of a transaction. Furthermore, at the end of the term, however it ends, the Tenant will be required to put the property into a good and proper state of repair and decoration.

5. Depending on the condition of the property, because of the onerous nature of the repairing covenants, the repairing covenants are often limited by reference to specific covenants for repair contained in the Lease. This requires careful consideration and negotiation and accurate drafting. If a Lease has only been granted over a part of a building, the repairs are usually carried out by the Landlord but the Landlord may wish to seek to recover from the Tenant the cost of repairs by way of a Service Charge. Once again the Service Charge must be carefully negotiated and drafted to ensure that the Tenant’s liabilities are not more than appropriate for the property being leased.

USE OF THE PROPERTY

6. Leases usually restrict how the premises can be used. This is often linked to the planning permission but sometimes, particularly in respect of commercial units in shopping centres or parades, the use is very specific so as to ensure that a Landlord has a proper mix of businesses at the development and that there is no unreasonable competition between two Lessees.

ASSIGNMENT AND SUBLETTING

7. Leases very often restrict the Tenant’s ability to assign or sub-let. Whilst absolute prohibitions on assignment are unusual the Landlord will seek to ensure that such assignment can only be done with his consent. Careful drafting and negotiation is required to ensure that the basis on which the Landlord grants consent is not unduly onerous.

8. Landlords often impose strict prohibitions on sub-letting and once again the conditions must be considered carefully to ensure that they are reasonable in all the circumstances. A Tenant should be aware of any such restriction.

TERMINATION OF LEASES

9. Whilst one of the characteristics of a Lease is exclusive possession for a fixed term, a Landlord can bring a Lease to an early end in the event that the Tenant is in breach of any of the covenants in a Lease. The Landlord can peaceably re-enter without a Court Order in the event that the Tenant fails to pay his rent within a specified time of the due date. This contrasts with residential tenancies where a Court Order would be needed. However, in the case of any other breach of covenant a Landlord must first give a Tenant notice of the breach and give them time to remedy the breach before bringing an application to the Court to determine the Lease. However, it must be clearly understood that commercial Leases usually reserve payment of Service Charge and insurance premiums as additional rent so that if these sums are not paid on the due date the Landlord can forthwith forfeit the Lease for non payment of rent.

CONCLUSION

10. The above is but a brief review of the main provisions usually found in a commercial lease. However, all cases are different and all commercial leases will have to be considered in the light of the surrounding circumstances.

This post is intended for your information only and is not intended to be construed as a legal opinion.  If you require detailed advice you should contact a Bahamian landlord and tenant attorney or a Bahamian property lawyer.  If you would like to contact someone for more detailed advice, you can do so by clicking here.