A practical guide to leasing commercial property in Jersey

The property market in the Channel Islands has remained remarkably buoyant throughout the recent global recession and resulting economic turbulence. Jersey remains a popular investment location for landlords who benefit from a less prescriptive statutory framework than other markets (in contrast to the trends in the UK), a relatively stable high street and a particularly active office space market.

The Jersey legal system carries many hallmarks of both English and French law but has its own unique idiosyncrasies.

Types of leases
Leases granted for over nine years are “contract leases” under Jersey law. They require an act of the Royal Court (which sits on a Friday afternoon) to take effect and following which is registered as a public document. The tenant under the lease will be liable for stamp duty, which is calculated on a sliding scale.

A lease for a term of nine years or fewer is classified as a “paper lease” in Jersey. Paper leases do not need to be passed before the Royal Court and can be completed at any time without attracting stamp duty.

The interaction of stamp duty and court requirements, depending on the duration of the term, mean it is normal in Jersey to see leases which have terms of either up to nine years or of 21 years and over.

Heads of terms
Heads of terms record the initial, headline agreement of the landlord and tenant. They are generally drafted by the landlord’s surveyors in advance of lawyers being instructed, but it is common for the parties to seek their lawyer’s comments on the heads of terms, as clarity at this stage helps to ensure a smoother overall transaction.

The key terms to be agreed before the lawyers start drafting and negotiating documents will include:

1. The duration of the lease term.

2. A reasonably detailed description of the land and buildings to be leased.

3. The amount of annual rent and whether the tenant will benefit from a rent-free period.

4. Whether the tenant will make any additional contribution to the costs the landlord incurs in maintaining the building or any common areas, insuring the building and how the tenant’s contribution (if any) will be calculated.

5. Whether the tenant will have options to break or to renew the lease.

6. Whether the rent will be reviewed during the term and on what basis.

7. What rights and restrictions will be placed on the tenant's ability to transfer or sub-let the lease.

8. Whether either party will be carrying out any works to the property.

Planning and building permission
Being able to use the property to be leased as envisaged is vitally important for both the landlord and tenant.

The tenant should ensure that they will be able to make use of the property as they intend to and that there are no extra restrictions placed upon them which would affect their business (i.e. a limitation on working hours).

The landlord should be confident that the tenant will be able to operate their business and receive a regular income but will also want to avoid the risk of enforcement action being taken in the event of a planning breach.

If adequate planning and/or building permissions are not in place already, an application should be made to Planning and Building Services as soon as possible. Applications may take up to 8 – 12 weeks so making a prompt application will help to avoid delays further down the line.

Repairing obligations
Generally, the longer the lease, the more onerous the tenant’s obligations to repair the property will be.

Paper leases will generally include obligations which extend only to “decorative repair”, which essentially means the maintenance of the non-structural elements of the property. Contract leases are much more likely to make the tenant responsible for the repair of the whole of the property, including the roof and structure so it is important for the tenant to carry out a survey of the building prior to signing the lease.

The exception to the general rule are leases of parts of buildings or estates (particularly which are multi-let).

Even if a lease of part is granted for a long term, the landlord will usually want to retain the responsibility for the insurance and repair of the structure (rather than leaving it to their tenants to co-ordinate) as it will allow the landlord to exercise substantially more control in the protection of the assets. In this scenario, it is standard for the landlord to charge all of the tenants in the building a service charge, which is a contribution to the cost of maintaining the structure, common parts, and the building's insurance.

Rent Reviews
In Jersey, where leases reserve a market rent, that rent is usually reviewed at regular intervals which are generally every three to five years. There are a number of different methods by which the parties agree to revise the rent but the two most commonly seen are:

1. Upward only reviews to an “open market rent”.

2. Upward only reviews in proportion with any increase in the Jersey Retail Prices Index.

Rent reviews which could decrease the rent are rarely seen in Jersey as landlords (and their lenders) require certainty as to the minimum level of rent they will realise.

Termination
The ways in which the parties can terminate the lease will depend on whether the document is a contract lease or a paper lease. A contract lease can only be terminated before the end of the term by an act of the Royal Court and therefore requires particular drafting to reflect this requirement for court approval. Paper leases do not require an act of the Royal Court and can be terminated either in accordance with the provisions of the lease or by the agreement of the parties.

Alienation
Jersey is not encumbered with the statutory framework which is included in English law. In the absence of such statutory provisions, Jersey leases should prescribe whether the tenant may transfer or sublet (or “alienate”) the lease and what conditions are attached to such alienation.

It is usual to allow the tenant to alienate the whole of the demised premises with the landlord’s consent (such consent not to be unreasonably withheld or delayed). Generally, landlords will reserve the right to require guarantors to be provided by either the proposed tenant or sub-tenant and will have an element of control over the terms of the proposed sub-lease.

Summary
In spite of the various nuances of Jersey law, most commercial lease transactions can be dealt with smoothly and promptly. The key to progressing quickly to completion is seeking the advice of relevant professionals at the beginning of negotiations so that the parties can agree detailed heads of terms and trouble-shoot any issues in advance.