Heads of terms for new leases typically specify that the tenant's rent free period will start from the earlier of completion of the lease and possession of the premises. Tenants might assume this means they will be allowed to start their fit out works before the lease completes. However, in the majority of cases, the landlord should refuse requests for early access for two main reasons:
- Until the lease and licence for alterations are granted, a tenant will not be bound by their terms (unless the parties have entered into an agreement for lease (see below)). These documents include important covenants such as repairing obligations, compliance with statute, insurance for fit out works and the manner in which such works may be carried out.
- Once the tenant has taken possession and commenced works the landlord may experience difficulties and incur expense if it becomes necessary to remove the tenant. Plus, the longer the tenant is in occupation, the more likely it may argue it has the benefit of a lease protected by the Landlord and Tenant Act 1954.
Of course, there are some circumstances where allowing a tenant early access may be appropriate. Usually this happens on larger development or refurbishment projects where the landlord's and the tenant's timetables require it. The basis for the early access should be covered by a well drafted agreement for lease which will cover, amongst other things:
- the purpose of the early occupation (generally fit out only, not trading);
- an obligation on the tenant to comply with the agreed form of lease and licence for alterations;
- the landlord's ability to recover possession in the event of tenant default or termination of the agreement for lease; and
- confirmation that the early occupation does not create a landlord and tenant relationship or demise the property to the tenant.