Tips for taking out a commercial lease and what to look out for
The feeling of finding the perfect premises for your growing business is exciting. With a multitude of requirements that need to be met, the search can take months – so, when you finally spot the Goldilocks property that ticks all your boxes, you’ll be eager to get your business moved in and set up.
Before you can get back to Business as Usual, there’s the important matter of negotiating your commercial lease.
Your commercial lease is the binding contract that dictates the relationship between your organisation and the commercial landlord. It sets out everything from rental payment schedules to your rights and responsibilities when operating from the premises. In short – this isn’t a document you should skim, sign and send back.
Whatever your requirements, a strong commercial lease will lay the foundations for success. If you’re in talks about a new premise for your business, we recommend taking the following tips:
1. Get an expert involved in case of problems with the premises
What if your perfect property has hidden problems that you didn’t notice beforehand? When you sign a commercial lease, you should be satisfied that the premises are suitable from both aa physical and legal perspective.
An experienced property lawyer can help by conducting research into the property; they can carry out a range of enquiries to discover external elements you may not otherwise consider such as whether there is a risk of subsidence due to the land in the area, whether the property is connected to mains utilities and other essential checks like whether the landlord actually has thew power to grant the lease.
Getting a lawyer to perform these searches in advance may seem like another hurdle in your route to relocating your business, but it’s worth it to prevent nasty surprises from thwarting your plans.
2. Consider the best lease length for your business
Lease lengths typically range from four years to 25 years. Shorter leases tend to provide greater flexibility and are ideal for growing businesses that envision moving to larger premises in the not too distant future. On the other hand, the terms of longer leases can be favourable for those seeking to make major adaptions to the property in providing more security.
Planning ahead is paramount in determining your requirements – if relocation could be on the cards and you aren’t intending to invest in your own commercial property, tying the business into a 10-year contract isn’t in your best interests. In other words, the lease length you negotiate should reflect your business’ short and long-term ambitions.
3. Look out for repair obligations
Under the terms of a commercial lease, tenants are typically responsible for property maintenance and repairs. What this entails will vary depending on the landlord and the lease, so make sure that you are comfortable with what is expected from you as a tenant. Whether the terms place the onus on your business for repairs of interior, exterior or both, it’s worth instructing a surveyor to carry out a search so you know upfront the likely financial implications for work that is required on the property.
On that note, it is possible to limit your repair responsibility by reference to a Schedule of Condition. A Schedule of Condition is a record of the condition of the premises at the start of the lease, and you can clarify during negotiations that you won’t have to put the property into a better state of repair than the condition it was in upon the start of the lease. The landlord may agree to carrying out works on the property prior to commencement of the lease to make it fit for use. Repair clauses are the most commonly contested aspect of commercial leases, so it’s essential to be alert to any increase in responsibility to you during negotiations.
4. Keep an eye out for rent reviews
Rent reviews are a staple of commercial leases and are typically carried out every 3-5 years. The result of the review will affect the amount you pay as a tenant; generally speaking, the review is set in accordance with the current market conditions at the time of review. The frequency of rent reviews is up for negotiation, so make sure you don’t get caught out with too many reviews. A solicitor will be able to advise as to whether the terms surrounding rent reviews (i.e. how they are conducted and how often they occur) to ensure they aren’t unreasonable.
5. Take a break clause
Early termination of a commercial lease isn’t as straightforward as you may think. If there is no break clause in the commercial tenancy lease, it won’t be possible to get out of the agreement until the term has run its course. By adding a break clause, you (and the landlord) will be able to terminate the lease early if needed – this can be useful for tenants with a longer lease length. When negotiating the terms of the break clause, it’s worth getting a specialist lawyer involved to ensure it benefits you and your business.
6. Negotiate a rent-free period
In economically challenging times such as the current landscape, landlords use a rent-free period as an incentive for tenants to sign a new lease. It’s nearly always a good idea to negotiate a rent-free period – at the beginning of a tenancy, it can make all the difference with cash-flow management. If there are repairs that need to be carried out and it isn’t practical for your landlord to fix them before you move in, you can ask for a rent-free period to off-set the costs from repairs and opportunities for new business that you may miss out on as a result.
7. Seek legal advice
No matter how perfect a property may seem for your business, it’s imperative to have a lawyer check under the hood of the commercial lease. Buried in the contract could be a clause that ties you in to unnecessary risks and liabilities. Our specialist commercial property lawyers have a breadth of experience in advising business tenants in taking on a new lease. You can count on us to safeguard your commercial and financial interests every step of the way. To find out more or to speak to a member of our expert team, fill in the footer form below or drop us a message on our live chat.
Get in touch
Complete our form and we will get back to you straightaway.