Leases in the retail sector: The premises, rights granted and reserved, and use

Extent of the premises

The extent of the premises should be clearly defined in the lease, especially for retail tenants. Whether the lease is for a high street retail unit, a shopping centre space, or a larger retail premises within a mixed-use building, it’s important to delineate the exact boundaries of the premises being leased. This includes defining both the areas that are included within the demise and those that are excluded. Ambiguity here can lead to disputes over responsibility for repairs, maintenance, and service charges, which are particularly crucial for retailers operating in high-footfall locations or within shopping centres.

For retail tenants, understanding whether the lease includes shared or common areas (eg walkways, communal entrances or mall space) is essential, as these areas often have shared service charges or maintenance responsibilities. Failure to clearly specify the extent of the premises could lead to disagreements about who bears the costs for upkeep and maintenance, potentially disrupting the tenant's operations.

If the lease term exceeds seven years, it will need to be registered with the Land Registry, requiring a Land Registry-compliant plan. Retailers should ensure the plan is drawn accurately to scale, showing the premises in a way that avoids future misunderstandings about the leased space.

Rights

Retail tenants must ensure that they have the necessary rights to operate their business without hindrance. These rights should be carefully documented in the lease and may include:

• Access rights: The lease should specify clear access rights, both for the internal and external parts of the building. Retail tenants need to ensure that access to the premises, especially for deliveries, customer foot traffic, and employees, is guaranteed and unrestricted.
• Rights of entry for repairs: Retail tenants should negotiate the right to access adjoining properties (owned by the landlord) for repairs or to comply with lease covenants.
• Emergency and fire escapes: In retail spaces, particularly in multi-storey or shopping centre locations, ensuring the right to use emergency fire escapes is vital for the tenant’s safety and legal compliance.
• Plant and equipment installation: Retailers often require the right to install equipment, such as air conditioning, signage, and other essential infrastructure. These rights should be explicitly granted in the lease.
• Car parking and loading bays: Retail tenants may need access to parking spaces for employees or customers, as well as loading bays for stock deliveries. These rights are often crucial for smooth day-to-day operations and should be included in the lease.
• Service media rights: This refers to the right to access services such as electricity, water, and data lines. Retailers should ensure these are guaranteed and clearly outlined in the lease to avoid any disruptions to operations.
• Signage rights: Retail tenants need the right to display signage on the premises, whether it’s to advertise their business or to direct customers to the store. The lease should specify the tenant's right to install and maintain signage, including any restrictions or approvals that may be required.

Retailers should also be aware of rights the landlord may want to reserve, which can affect the tenant’s use and enjoyment of the property. These may include:

• Landlord’s right of entry: Retail tenants will want to negotiate limitations on the landlord’s right to enter the premises. For example, access should only be permitted during certain hours or for specific purposes (such as emergency repairs). Retailers should ensure that any landlord access does not interfere with trading hours or customer-facing activities, particularly during peak periods such as holidays.
• Development and redevelopment rights: The landlord may reserve rights to develop or redevelop other parts of the property or surrounding areas. Retail tenants should carefully consider how these rights may impact their store, especially if construction or redevelopment could disrupt footfall or the overall shopping experience.
• Scaffolding or maintenance: Landlords often reserve the right to erect scaffolding or perform maintenance, but retailers should ensure this can’t block entrances, obscure signage, or create a hazard for customers.

Given that interruptions in business operations can lead to significant losses, especially for retail tenants, it’s critical to include clauses that limit the landlord’s ability to access the premises or perform disruptive works without prior notice. For example, access could be restricted during key trading periods (such as the holiday season) and should only be allowed for reasonable purposes and within reasonable hours.

Use

The permitted use of the premises is a crucial provision in the lease, particularly for retail tenants. The lease will typically include a “user clause,” which specifies what activities the tenant can conduct on the premises. Retail tenants should ensure that the use is clearly aligned with their intended business activities. For example, if the tenant plans to open a fashion store, the lease should permit that activity, and any changes in the business’s focus should be accommodated.
However, tenants should be mindful that the use permitted by the lease may not automatically comply with planning law. For example, if a retail tenant’s proposed use does not align with local zoning or planning restrictions, they could face legal action or even forfeiture of the lease. Retail tenants should have their solicitors check the planning permissions to ensure that the lease’s permitted use is consistent with applicable laws.

Additionally, the recent changes to the Use Classes Order mean that retailers need to be particularly cautious in renewal leases. Terms from older leases that refer to outdated use classes could lead to unintended restrictions on the business’s ability to diversify or adapt in the future. It’s essential that any user clause reflects the latest updates to the Use Classes Order, especially for retail businesses looking to stay flexible in a changing market.

Beyond the permitted use, the lease may also contain additional restrictions to protect the landlord’s interests or the surrounding tenants. These could include clauses to prevent the tenant from using the premises for immoral or disruptive purposes or from creating a nuisance that could affect neighbouring businesses.
One additional consideration for retail tenants is the Keep Open Clause. The landlord may, especially If the tenant’s rent is based, in whole or in part, on turnover, require a “keep open” provision. This clause obligates the tenant to keep the premises open for business during certain hours or periods. It is especially relevant in high-traffic retail locations where a tenant’s closure during trading hours would impact the overall shopping environment and the landlord’s rental income.

For more information or advice, please contact Steve Faragher in our Real Estate team