What represents a pre-let agreement?

A pre-let agreement is simply an agreement between a landlord and a prospective tenant to enter into a lease at a date in the future. This is often contingent upon the satisfaction of certain conditions such as the completion of a building or fit-out project. Unlike a lease, a pre-let does not create an immediate legal right to exclusive occupation of the premises but does create contractual rights and obligations between the parties.

Commercial benefits of pre-let and pre-lease agreements

Pre-let agreements, also known as pre-tenancy agreements or pre-lease agreements, perform a crucial role in aiding fluidity of the commercial real estate market in Jersey. The facilitate relocation from existing business premises into new or refurbished premises whilst also providing a period of time in which tenants can end their existing occupation arrangements, whether by breaking or assigning a lease. For landlords, they mean that a future income stream can be secured before any money is spent constructing or fitting out premises in order to make them suitable for a future tenant.

Why are pre-let agreements important?

Without some degree of certainty that a lease will be granted at a future date, tenants and landlords would be exposed to various risks. In the case of a landlord, it could be required to expend significant time and expense in securing necessary consents, carrying out a refurbishment or fit out, or possibly even constructing a new building in accordance with a tenant’s specifications. A landlord may suffer an extended void period and additional costs in securing a replacement tenant and might even need to refit the premises to make them suitable for a different tenant. For a tenant, it may be forced into temporary accommodation whilst it locates suitable alternative premises with the consequent risk of interruption to its business.

The primary function of a pre-let is to provide as much certainty as the law will permit to the parties that the lease will be entered into at the requisite time in the future on the satisfaction of certain conditions. Pre-lets provide clarity around important issues such as time frame for completion of works, responsibility for obtaining consents and the consequences of a breach. They are complex legal documents requiring the parties to substantially agree both the framework for the grant of the lease and the terms of the lease itself.

The contractual obligations on the landlord to grant a lease and the obligation on the tenant to accept the lease are often supported by way of a ‘liquidated damages’ clause. These clauses provide a predetermined level of damages that will apply in the event of a failure to enter into the lease at the relevant time. The level of such damages is generally a matter for negotiation but are often substantial so as to provide sufficient incentive for both parties to perform. This is particularly important in the cases of leases for more than nine years, where completion involves passing the contract before the Royal Court and are not specifically enforceable – that it to say the Court will not compel any person to pass contract against their will. It is a pre-requisite that such damages must reflect a genuine pre-estimate of the loss that would be suffered by the aggrieved party.

A pre-let agreement, therefore, provides a means by which both a landlord and a tenant can seek to mitigate certain risks associated with the grant of a new lease. Due to the complex nature of the document and the often competing interests of landlord and tenant, parties are well advised to take legal advice before entering into a pre-let agreement.

What happens once the conditions of the pre-let agreement are satisfied?

The pre-let agreement will usually incorporate a draft of the lease itself, which will be substantially in the final form. Once all other conditions are satisfied, any final details, such as internal measurements and commencement dates, will be agreed and the lease will be signed or passed before the Royal Court.

Most of the negotiation will have been carried out at the pre-let stage, so the delay between satisfaction of conditions precedent and the tenant actually taking possession can be relatively short.

Should I consider a pre-let agreement?

If you are negotiating a lease that is not due to start immediately, or where building or fit-out works are being carried out, it could be to the advantage of both the landlord and the tenant to consider a pre-let agreement.

What is a pre-lease agreement?

A pre-lease agreement is simply an agreement between a landlord and a prospective tenant to enter into a lease at a date in the future.

Twitter LinkedIn Email Save as PDF
More Publications
2 Nov 2023

“Arranging” deals in investments is now a regulated activity under the Financial Services (Jersey) Law 1998

Appleby Jersey experts explain why changes to the Financial Services (Jersey) Law 1998 help protect ...

6 Oct 2023

A comparison between the GDPR and the Jersey Data Protection Law

Richard Field discusses key aspects of Jersey's recently enacted data protection legislation in comp...

11 Jul 2023

Proposed Regulation of Consumer Credit in Jersey

Find out more about the Jersey Government’s suggested regulation of the consumer credit regime and...

17 May 2023

More changes to Jersey's Anti-Money Laundering Regime (AML)

Our experts look at latest proposals to the legal and regulatory anti-money laundering framework in ...

10 May 2023

Establishing a single family office in Jersey

Want to know more about establishing a family office in Jersey? Find out what a family office is and...

27 Apr 2023

Change of control of regulated entities in Jersey

Find out how Appleby Jersey has advised upon a number of changes of control scenarios in different c...

20 Mar 2023

Trusts: Comparison between the Crown Dependencies

Our Private Client and Trusts specialists in Guernsey, Isle of Man and Jersey outline some of the ke...

15 Mar 2023

Changes to the Jersey Competition Law Framework

Following the launch of the Government of Jersey's consultation on proposed changes to the competiti...

14 Mar 2023

Jersey Property Unit Trusts and the Trust Regulation Service

Our Appleby team looks at HMRC's recently updated guidance on Jersey Property Unit Trusts (JPUTs) an...

23 Feb 2023

Enforcement of security under the Security Interests (Jersey) Law 2012

Find out more about why the Security Interests (Jersey) Law 2012 (2012 Law) makes Jersey popular as ...