Taking on a commercial lease is a big commitment and making sure you negotiate the best deal for your business can be tricky when trying to work your way through unfamiliar clauses and regulations.
Before signing a commercial lease contract, businesses should consider the following top tips of Ecovis’ team of experts.
- How long?
Decide how long you would like to rent the property for, taking into account likely future business needs. You should consider:
a) Security of tenure: UK legislation gives business tenants the right to renew their lease at the end of the term. Landlords can only oppose this on limited statutory grounds and are therefore often keen to exclude such provisions. If you have found the perfect property, and are going to be investing in it by altering it to suit your needs, you should try and avoid any exclusion of these rights.
b) Break clause: this gives flexibility by allowing you to terminate your lease early, usually on a fixed date after giving several months’ notice. Try and avoid any conditions on the break other than payment of rent and giving up occupation.
c) Disposal: depending on the lease length, you may have the ability to sublet (grant a lease to another party) or to assign (transfer/sell) your lease. This can be a lifesaver if your business requirements change.
UK leases generally require a tenant to keep the property in good repair, regardless of its condition at the start of the lease. It is always a good idea to commission a survey on the property so you know what costs may arise, and it may then be possible to agree a limit on your repairing obligations by way of a schedule of condition.
- What will I have to pay?
Make sure you check the following:
a) Rent: this may be fixed for the whole term or be subject to review after a few years – either linked to market rent or in line with inflation – either way, usually the rent will not go down!
b) Rent-free period: it may be possible to agree a rent free period at the start of the lease to take into account any expenditure you envisage to get the property in the state that you require.
c) Service charges: if you are renting part of a building, you may also have to contribute towards the maintenance costs of any common parts e. g. lifts or other building services. Try and agree a cap on these charges, otherwise you will have limited control on what you have to pay.
d) Insurance: the landlord will usually insure the building but will expect you to pay part of the premium.
e) Outgoings: usually, business rates, electricity and other utilities are payable in addition.
- Professional Advice
It is always sensible to appoint an experienced commercial property agent and specialist solicitor at the outset. The agent will draw up heads of terms to reflect the main terms of the deal as agreed with the landlord – and the solicitor will then ensure they are correctly reflected in the final lease, as well as carrying out various checks on the property.
Caroline Lovegrove, trainee solicitor
Barlow Robbins LLP, Surrey, UK