If you are a tenant or landlord for a commercial property, lease variation is an important right to retain and exercise because it allows the terms of the lease to be changed after execution of the document.

A lease is a contract and therefore, without explicit drafting to the contrary, its terms are time-locked from the date it was signed.

Leases are also a special type of contract because they often run for long periods of time and concern a subject matter that can have multiple factors affecting it at any one time (i.e., buildings!).

As such, circumstances might change, and what the landlord and tenant entered into at the date the lease was signed may not exactly be suitable for both parties later on down the line.

So, what do you need to look out for when deciding if your lease needs to be varied? Never surrender!

A very important issue to look out for is an inadvertent surrender of the current lease and a creation of a new lease when attempting to implement a variation to the former. This commonly happens where the variation attempts to extend the contractual term of the lease or the definition of the property under the lease is changed in some way.

For example, the landlord has extended its property, and the tenant wants to move some of its business operations into the new part of the building. Both may think they can simply change the definition of the property under their lease to factor this in. However, this could have tax implications as, technically, this would be a regrant of a lease and stamp duty could be payable.

No variation needed?

Leases often contain terms where the landlord can just give its consent for something the tenant wishes to do on the property, or which affects their occupation without the need to vary them.

For example, a tenant wishes to install a new extraction unit in the cafe they are leasing. Instead of needing to vary the lease terms, it is noted that the lease already has provisions in it that permits the tenant to make this change subject to them securing express consent of the landlord to allow the alteration to the property.

A separate document (in the form of a license) would be required though albeit, the original lease would remain unchanged.

Different rules may apply

The traditional formalities to follow when implementing a lease variation is to enter a separate deed of variation drafted by a solicitor and signed by both the landlord and tenant (with witnesses).

However, in certain circumstances, such as to merely have a clerical error rectified following registration of a lease at the Land Registry, parties may quite simply be able to apply to the appropriate body to make the correction.

Careful drafting

The more complex the variation is, the more diligent the drafting has to be.

If you wish to implement a variation which, for instance, introduces a new concept into the arrangement between the landlord and the tenant, there increases the likelihood of conflict with other provisions within the lease resulting in costly and time-consuming renegotiations.

For example, a tenant wishing to vary their lease to include clauses relating to newly installed effluent waste infrastructure on a landlord’s business park may be in conflict with some of the environmental warranties and obligations in the lease.

This would mean new definitions would need to be introduced to make the desired provisions work but the landlord will probably object to this knowing that such changes will result in this one lease breaking the standardised form of lease they have already had professionally drawn up, approved and possibly used across their multiple properties.

Of course, such changes can differ on a case-by-case basis and so procuring the services of a specialist property lawyer to allow such variations to work with the other terms of the lease is a sensible approach.

Lease Jenga

Tenants can sometimes grant a lease to another tenant (often called an undertenant) from their lease (often called the headlease) with their landlord.

It is possible that this can happen multiple times and multiple undertenants can exists as long as the leases granted are not on contractual terms longer than the leases above them in the chain. As such, one must consider whether the variation to the underlease can conflict with provisions and particular tenant obligations within any superior lease.

If the variation results in the tenant who is granting the underlease being in breach of its obligations in the headlease, then this could result in the headlease being terminated, meaning no underleases can be granted from it anymore.

Think of it like stacking a pile of leases on top of each other and then the document at the bottom of the pile is quickly pulled away, collapsing the rest of the tower.

Conclusion

Lease variations are not just as simple as marking up a document with a red pen. They do not just operate in a vacuum and instead strategic thinking is often required on the overall impact the variation could make on the wider property arrangement or transaction affecting the parties (as well as third parties).

DISCLAIMER: The information and opinions expressed in this article does not address individual requirements and is for informational purposes only. It does not constitute any form of legal advice and should not be relied on or treated as a substitute for specific advice relevant to your particular circumstances.