As a rule, commercial lease agreements are executed for long periods - typically 5–10 years or even longer. Over time, the original terms of a lease may no longer serve the needs of either the tenant or the landlord. In such instances, the lease may need to be amended. However, the process of amending a commercial lease can be complex and may lead to unintended outcomes.

Reasons for Making Amendments

Before making any amendments to the original commercial lease agreement, it's important to note that amendments cannot be made unilaterally. For any changes to be legally binding, they must be agreed upon by both parties. Common reasons for amending a lease include:

·       Updating the terms of the lease;

·       Changing the amount of rent payable;

·       Adding or removing clauses;

·       Modifying the permitted use of the property;

·       Granting additional rights to one of the parties.

To avoid future disputes, all agreed changes should be documented clearly in writing.

Routes to Amend a Lease

One formal method of amending a lease is through a deed of variation. A deed of variation is a legally binding document that permanently alters the terms of the original lease. Future landlords and tenants will also be subject to its terms. Once executed—and registered with the Land Registry, if necessary - it becomes part of the lease. To avoid confusion, the deed should clearly state that the amendments were made by mutual agreement.

Although amending a commercial lease may seem straightforward, the process can be more complex than expected. For example, if the variation involves extending the lease term or expanding the leased area, it may be considered a “deemed surrender and re-grant.” In such cases, the parties are treated as having entered into a new lease, rather than merely varying the existing one. This can raise several issues: the parties may become liable for Stamp Duty Land Tax (SDLT); the tenant may be required to repay any deposit paid under the initial lease; previous tenants and guarantors may be released from their obligations.

The release of a guarantor, in particular, could create financial risks for the landlord. To avoid this, it is advisable to include guarantors as parties to the deed of variation to ensure their obligations remain intact.

As an alternative, where the formal route seems too complex, parties can make minor changes through an exchange of agreement letters. These are suitable for less significant amendments, such as changing rent payment dates. However, these agreements cannot be registered with the Land Registry and will only bind the current parties, not future landlords or tenants.

In some cases, varying a commercial lease is necessary. However, landlords and tenants must remain mindful of the potential legal and financial implications. Careful consideration of the benefits and risks associated with lease amendments is strongly recommended.

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