Being a commercial landlord: tips for investors
Landlords can choose to invest in either commercial or residential property. However, there are some important distinctions between being a commercial landlord and a residential landlord. This article explores how they're different.
Investing in commercial property vs residential property
If you have some money that you would like to invest, then the appeal of becoming a private landlord has long been clear to many investors.
But for various reasons, commercial property leasing has traditionally been primarily the preserve of larger-scale or institutional investors. One reason is that commercial property can require greater investment. Shops and small office buildings involve a similar outlay to a residential property, but a typical commercial investment will involve a bigger spend.
Another reason is that valuing a commercial property is a highly specialised business. Of course, location is all-important in residential property too, but with commercial premises the footfall outside the front door can be what counts - the postcode is only the start.
Yet, private investors can find themselves drawn to commercial property letting. Commercial leases tend to be less difficult for landlords than their residential counterparts. Tenancies also tend to be longer. This combination can make commercial property investment an attractive proposition.
Commercial landlord responsibilities
Commercial landlords renting out a property to a business or organisation have a number of health and safety responsibilities.
- Fire safety - It generally falls to the tenant to ensure the fire safety regulations for the premises are being followed. However, if the lease specifies that the landlord is responsible for safety, you may have to take care of fire safety. Make sure the lease is clear from the start, so both parties know their responsibilities.
- Electricity - Again, it can be unclear as the responsibility for electrical appliances can be divided between landlord and leaseholder. Be sure that the exact and specific terms are clear in the lease. In general, the landlord is responsible for the basic wiring of a building. If you supply electrical appliances, then these will need to be safety checked and have the relevant certification.
- Gas - If you're supplying any gas appliances, then it's your responsibility to have them checked. Otherwise these are the responsibility of the leaseholder. Ensure responsibilities are clearly outlined in your tenancy agreement from the start.
- Fixtures and fittings - As a landlord you need to make sure that all fixtures and fittings are safe and ready to use. Any electrical equipment you supply must again be tested and certificated. Equipment brought in by the tenant is their responsibility.
- Asbestos - The structure of the building must be safe and suitable for use at the beginning of the tenancy. If asbestos is found in your premises, then it might not be necessary for it to be removed. A proper risk assessment must be undertaken and again there must be clarity in the lease from the start.
The structure of the building must be safe and suitable for use at the beginning of the tenancy. If asbestos is found in your premises, then it might not be necessary for it to be removed. A proper risk assessment must be undertaken and again there must be clarity in the lease from the start.
There are severe penalties for not managing the risk of asbestos. More information on asbestos can be found on the government Asbestos regulations for your commercial property page.
It's important to research the health and safety issues affecting your property thoroughly before leasing your property to a business or organisation.
Commercial landlord rights
Commercial landlord rights and obligations must be firmly established in the lease so as to avoid confusion during the tenancy. This government guidance outlines the health and safety responsibilities tenants must comply with by law.
It's worth noting that any responsibility that isn't outlined in the lease will likely be the responsibility of the tenant. As the government puts it in its official advice for tenants of commercial properties:
“Any responsibility that isn't mentioned in the lease will usually be yours as the tenant.”
Still, it's worth ensuring that the lease is as clear as possible. Getting a legal professional to review the lease can help confusion further down the line.
Can a landlord change the locks on a commercial property?
Though commercial landlord tenant law can be complicated, the short answer is that a landlord can change the locks on a commercial property. However, if the property has any residential tenants in it at all, then a court order must be obtained. For example, a mixed-use property might mean a tenant lawfully living in the flat above a shop.
A landlord can forfeit a lease if a tenant has breached a condition of the lease, such as ongoing failure to pay rent. However, before taking steps that may spell the end to a tenant's livelihood it's worth considering factors such as:
- Will it be straightforward to find another tenant?
- Is the tenant persistently unreliable or is this situation uncharacteristic?
- Can the situation be resolved through negotiation?
- What are the costs of letting the property remain empty or unused?
- Is there any room for error in your decision to forfeit the lease and are you at risk of paying compensation if so?
Commercial leases often have a clause that permits peaceable re-entry in the event of rent arrears. It's important to find out about the proper processes for re-entering a property by consulting a legal advisor. Without the right commercial landlord advice, you risk unlawfully re-entering the building and could face legal costs as a result of trespassing.
In conclusion, for commercial properties, the lease agreement is especially important. The specifics of the building's use may change depending upon who you lease it to, so it's important to review the lease with a legal professional if there is a new tenancy.
It's likely that you'll maintain a good relationship with your tenants as a commercial landlord. However, the unexpected can put your property at risk, so it's also worth covering your property investment with commercial landlord insurance.