Agreements for Lease – Top Tips for Developers

Agreements for lease (“AFL’s”) are an essential part of developments. They are used to bind a developer and tenant into entering into a lease for a property once the development is complete.

If the developer is looking to sell the development after its completion (commonly referred to as “Practical Completion”), the development will be more appealing to prospective buyers.

Listed below are some of matters which developers should consider when negotiating an AFL:

Building Obligations – the AFL should be drafted in light of the obligations contained within the building contract and also reflect any lender requirements. Consideration should also be given to the developers variations to the build (i.e. ideally to be permitted without tenant consent if insubstantial). Where a tenant requires variations, a developer should ensure these are permitted under the building contract and also ensure that the AFL allows for the developer to refuse tenant alterations in certain circumstances. Consideration should also be given to costs and any impact to timings as a result of any tenant variations or inspections of the development which cause delay to Practical Completion.
The date given for Practical Completion should be extendable under the AFL, as developments are often at risk of unanticipated delays.
Measurement and Rent – the AFL will often link the annual rent to a final measured area. Consideration should be given to what happens in circumstances where the premises are larger or smaller than expected and this should be clearly addressed in the AFL.
Practical Completion and Defects – consideration should be given to what happens in circumstances where there are defects in the building works after Practical Completion (which is generally the trigger for Lease completion). The building contract should deal with this and is often referred to as the “Defects Liability Period”. The building contract provisions usually require the contractor to rectify defects for a specified period e.g. 12 months from Practical Completion. It may be agreed within the AFL that the Landlord will use reasonable endeavours to enforce the contractor’s obligations under the building contract. It is also common for tenants to insist upon collateral warranties which effectively allow a tenant to pursue the contractors under the building contract or otherwise. Collateral warranties can be supplied by people such as the building contractor, architects and other members of the developer’s professional team involved in the build. The developer should seek to limit its liability for defects and the AFL should contain sufficient provisions relating to the same.

It is important that developers understand their responsibilities and what is being agreed with each tenant under an AFL and your solicitor should set these out to you before exchange of contracts.

For further information, please contact:

Adele Walker

Solicitor, Real Estate

adele.walker@brmlaw.co.uk

Sheffield Office: 0114 3497000

Chesterfield Office: 01246 555111

info@brmlaw.co.uk

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