Renting your first commercial property is a huge step for any business. With the numerous clauses and regulations to consider depending on the type of commercial lease you choose; it can be quite a daunting experience.

To keep your business protected, negotiating a lease that works for you is essential. Skipping this step can lead to being trapped into a commercial rental agreement for longer than you may want. To avoid these issues, here are some things to consider before taking a commercial lease of property.

Term of the lease

Commercial leases are shorter than residential, typically five to ten years. For a business such as a restaurant, long term may be suitable due to the work you’d put into fitting out a unit. A short lease is usually the option for those who don’t wish to be chained to a property. Just remember that a longer lease gives the landlord greater security, potentially giving you more bargaining power!

Rent reviews

Whatever commercial property you intend to rent, you will be subject to rent reviews. These are usually every 3-5 years and can alter how much you pay as time goes by.

There are different ways a rent review can take place, but the most common is an ‘open market rent review’, which allows the rent to be set in accordance with current conditions of the market at the time of the review. However, rent reviews normally stay the same or increase depending on the market rent at the time. This is why you should check if the chosen area is prone to fluctuating rents.

You can negotiate the frequency of your rent reviews, so try to avoid being caught out with too many from your landlord. It will help to speak with a solicitor to ensure you agree to a reasonable deal.

Security of Tenure

Surprisingly, many tenants are unaware of this. Security of tenure arises under the Landlord and Tenant Act 1954. This means that the lease will effectively continue when the term ends. What’s more, the tenant reserves the right for a new lease to be granted and the ways in which a landlord can end this is limited.

As a result, landlords often require the lease to be ‘contracted out’. In other words, the tenant will waive their rights to renew. Of course, a lease with this protection will make it even more valuable to the tenant, especially when the property is perfect for their needs. As such, a landlord may want a higher rent in recompense.

Repairs and insurance

These days, many new releases are described as fully repairing and insuring (FRI). This means the tenant is responsible for repairs and must pay for insurance for the premises. The repair work required will be outlined in your lease. They are the most commonly contested aspect of commercial leases, so it is important to keep your eyes open for any increased responsibility during lease negotiations.

Alienation

Alienation is the tenants right to dispose of the property, usually by leasing or transferring to a third party. Some leases prohibit this, and many require the landlord’s consent. The more restrictive the clause, the less the lease is worth. Therefore, if you cannot transfer it, it is of no worth to others.

You must also consider the matter of Authorised Guarantee Agreements. This means a tenant can still be held responsible for the lease rent even after transferring it. Consider what you can and cannot do with the lease and where you will still be liable.

User clause

Typically, leases have clauses that specify the type of activity that can be carried out by the tenant in the building. For example, if the lease states that you can only use the premises as a restaurant, you may be breaking the clause if you transform it into a shop or restaurant.

Break Clause

Break clauses allow either the tenant or landlord to formally end the lease before the term ends, bringing liability to an end as well. This is great for the tenant, but maybe not so much for the landlord.

However, break clauses tend to only allow the lease to be terminated after a minimum period and when certain conditions are met. If they’re not, the right to break will be missed. On top of this, the landlord’s break clause allows them to end the lease at a time may be inconvenient for the tenant.

In Summary

Negotiated well, a lease can help both you and your landlord form a great relationship that will allow you to work together for many years. Consider the needs of your business with care and always listen to your solicitor’s advice to ensure you make the right decisions.

Of course, having the right solicitor is equally important. At Betesh Middleton Law, we take the time to understand your objectives at the start of the transaction, so that we can offer sound commercial and technical expertise. Our proactive approach enables us to ensure that your commercial property transaction proceeds as quickly and as smoothly as possible. To learn more about our services, get in touch.