Commercial property leases – 5 things to look out for
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Whilst leasing a business premises is not an unusual occurrence, you should not enter into the process without paying due care and consideration to all factors. A commercial property lease is potentially one of the most onerous business agreements you will sign, especially when you consider that lease terms are often for periods of 3 to 5 years, and sometimes even longer as a minimum.
There are a number of practical questions you will want to ask yourself before you take on a lease for a new business premises, including whether the building will be suitable for your business for the entire length of the lease, whether it has the correct planning permission for your planned usage and whether the location is practical for both staff and customers.
There are also a number of legal aspects of a commercial lease you will need to carefully consider, as detailed below.
Before you agree to a lease you should ensure a full understanding of the rent that you will need to pay and the due dates of rental payments. Whilst most of the time it will be stated, it is also worth double checking whether VAT is to be added to the stated rental figures.
If possible, you should try to negotiate a rent-free period, particularly if there will be a period of time you will need to take making installations or alterations to a building or if you are taking on a particularly long lease (longer than five years).
You should also be mindful of the contents of the lease in relation to rent reviews. Many commercial leases include provisions for regular rent reviews and you should take note of any associated clauses before taking on the lease.
Depending on the type of property being leased, there will be different obligations in relation to repairs. For standalone premises, most leases are ‘full repairing and insuring leases’. This would make you, the tenant, responsible for any and all repairs required during the length of your tenancy. If a building is shared with other tenants, it is more likely that the landlord would be responsible for structural repairs.
In order to satisfy any queries in relation to the state of a building’s repair prior to taking it on, it is possible to request further information from the landlord – such as a guarantee of any recent works or any relevant certifications.
It is also sensible to obtain a schedule of condition in order to record the exact state of the property at the commencement of the term. You should be aware that you will be expected to leave the property in no worse a state than is evidenced in the schedule of conditions.
A break clause is a provision in a lease which enables either the landlord or the tenant, or both, to end the lease early. Such clauses can be very useful to tenants, especially if the premises are to being used for a new business or if there is any other uncertainty as to the suitability of the building for the full length of the lease. Should the lease provided by the landlord not contain a break clause, you should consider negotiating to have one included.
At the point you take on a lease, you should be sure to diarise the break date and the notice period required. You will also need to be well aware of your obligations in relation to exercising a break clause, particularly with regards to dilapidations, vacant possession and any other specified conditions of the break.
Although it is possible to make alterations to a building you are leasing, you will normally have to get the landlord’s written consent before you do so.
You will need to be aware that you may be required to reverse any major alterations you have made to a building prior to vacating it at the end of your period of tenancy in accordance with your obligations in relation to the general repair of the building.
The law entitles tenants to renew their lease at the end of a fixed term provided the lease is within the Landlord and Tenant Act 1954. Whilst you may anticipate that a lease renewal would be relatively straightforward, the process can in fact be relatively complex. As such it is always worth using professional advisers to help navigate the legal requirements at hand and ensure your interests are fully protected.
For further help and advice in relation to a commercial property lease, please contact our team of commercial property solicitors today.