Renting a commercial property is usually one of the biggest investments a business will make. When you decide to take out a commercial lease it is important to choose the lease that best suits your business and to negotiate terms which will enable your business to thrive.
Whether you are taking on a business premises for the first time, or whether you are relocating to a new building, it is important to make sure what you are signing up to will have the right amount of flexibility and protection to suit your business needs.
Commercial leases are complex and there are a number of issues to be wary of.
Our experienced Commercial Property Lawyers share 7 top things to be aware of before signing on the dotted line.
1. Is the term of the lease right for my business?
It is important to try and agree on the right lease term for your business. A longer term gives you security but ties you to a lease that can be difficult or even impossible to get out of. Consider your business plan, forecasts and growth strategy along with the current economic position or predictions to try to settle on a reasonable length of commitment.
2. Permitted Use
Leases of commercial property usually include restrictions on the purposes for which a tenant can use the property. Permitted use has two meanings, the use permitted under planning law and the use permitted by the lease. it is important that both align with your planned use of the property.
If you want to change the use of a commercial property, landlord’s consent will be required and planning permission may also be needed.
3. Is the rent fixed for the whole of the term?
Most long-term leases will allow the landlord to review the rent, usually every three to five years. There are various different mechanisms for rent reviews, such as an open market value review or an indexed rent review based on RPI/CPI.
You should review any assumptions and disregards. For example, you may want any improvements you have made to the property to be disregarded on rent review, as improvements would normally increase the value of the property and therefore the rent
It is also important to determine what happens if there is a disagreement with the new rent figure and the potential costs involved.
4. What other payments must I make?
You will usually be required to pay a service charge to the landlord for the repair of the building, estate, or common areas. It is prudent to obtain copies of the service charge accounts from previous years, an annual service charge budget and to ask whether there are any anticipated or planned substantial works such as a new roof.
Building insurance is usually paid for by the landlord and the tenant is required to reimburse the landlord with a proportion of the premium.
You may also have to pay Stamp Duty Land Tax when you take on a new lease. The amount payable will depend on the length of the lease and the amount of the rent or premium.
Repairs to commercial property can be expensive. Leases are often drafted on a “full repairing basis” meaning that you may be responsible for putting the property into repair even if it is in disrepair at the start of the lease. Therefore, it is important to assess the condition of the property and understand the extent of your repairing obligations before signing the lease.
Tenants can seek to limit their repairing obligations to the condition of the property at the start of the lease, with a schedule of condition as evidence.
6. Can I terminate the lease early?
A break clause can be included allowing either the landlord or the tenant to terminate the lease early. The right to break may arise on one or more specified dates or it may be exercisable at any time during the term on a rolling basis. Break clauses often come with strict conditions, so it is important to try to limit these as much as possible.
7. Do I have security of tenure?
It is important to know whether you have security of tenure or not. This is the right to remain in the property and request a new lease when the term ends. Many commercial landlords will exclude this right.
Security of tenure gives tenants peace of mind knowing they can invest and grow their business without having to worry about vacating the property at the end of their lease.
Check with a solicitor
It is important not to rush into signing a commercial lease without taking legal advice. It is likely that there will be clauses and conditions in your commercial lease that you’ll want to change before you can sign it.
A lease will generally include onerous obligations on the part of the tenant, with risks that include being unable to exit the lease when you wish or being liable for extensive repairs to the property.
The Commercial Property Team at Lamb Brooks Solicitors will take the time to understand your business, go over the lease and negotiate with the landlord’s advisors on your behalf to ensure that the lease you sign is as beneficial as possible to your business. Having expert advice on your business property lease allows you to focus on the day-to-day running of your business rather than stressing about trying to get your head around, what can often be complex, commercial leases.
To speak to a Commercial Property lawyer today, please get in touch with our friendly team on 01256 844888, email enquiries@lambbrooks.com or speak to our online chat assistant (who is a real person, not a robot) at any time of day.
Whether you are new to the commercial property world or a seasoned business owner, we are happy to help as much as is required to get you in a lease which is suitable for your business’s future.
The contents of this article are for the purposes of general awareness only. The do not purport to constitute legal or professional advice. The law may have changed since this article was published. Readers should not act on the basis of the information included and should take appropriate professional advice upon their own particular circumstances.