What you need to know about leasing a commercial property
30th July 2019

In the beginning serviced offices are a quick and easy solution, but once your business is off the ground and you are scaling-up, finding the right ‘space’ for your business to grow is imperative; getting it wrong can adversely affect your bottom line.

When you are ready to lease your own premises, here are a few tips:

Term:
What is the duration of the lease?  Ten or even five years is a long time for a fast growing business. Will the property still be suitable by the end of the term?  Check if there are break clauses allowing you to terminate, or the right to sell the lease (assign) or underlet to another business. If you want a statutory right to renew at the end of the term, make sure it isn’t contracted out of the LTA 1954.

Condition:
Is the property in good condition? What is the extent of the property; does it include the external structure and mechanical plant.  Most leases are full repairing and insuring (FRI) meaning that you will be responsible and can be caught for dilapidations at the end of the term.  Consider obtaining a survey and limiting your liability by reference to a photographic schedule.

Rent:
The lease will reserve a principal rent, usually paid quarterly in advance.  Check if you will need to pay VAT. For shorter leases try to agree a fixed rent for the duration of the lease, which will give certainty, rather than rent reviews.  Rent reviews are a mechanism to agree the rent at a later date, based upon assumptions, disregards and market conditions at the time (Open Market Rent).  Most rent reviews only allow a rent to increase, not decrease. Can you negotiate a rent free period too?

Other Outgoings:
Check if there is a Service Charge.  If possible agree a cap on any increase.  You will probably be responsible for utilities, cost of the Landlord’s insurance, business rates and other joint maintenance payments too. Check how these are calculated and that the landlord must act reasonably. You will probably also be liable for landlord’s costs in certain circumstances, such as consent to sublet.

Alterations:
If you need to make some alterations (fit out works) you will probably need the Landlord’s consent. Obtaining their consent at the outset will save costs later. You will need to provide drawings and specifications.

Break Clauses:
If you want the ability to terminate the lease, you will need a break clause.  These can be fraught with difficulty and there is a plethora of cases on break clauses where a break wasn’t effective, because a small technicality (‘Condition’) wasn’t satisfied. Check Conditions carefully.

Alienation:
This is the ability to assign or sublet, which is important if you think you might outgrow or need to move during the term of the lease, especially if you haven’t got a break clause.  Again, there are usually lots of conditions to be satisfied.

Heads of Terms: Agree a deal that works for you, and document it in Heads of Terms before instructing lawyers.  This will save a lot of time and money.

We offer a range of options for tenants, and tailor our services to your needs. If you want further advice, about reducing your risk when leasing a commercial property, please get in touch.

 

Disclaimer
This article is for informational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given.

About the author

Anna
Power
Freeths LLP
A personable and pragmatic commercial property solicitor with over 10 years’ experience, and specialist knowledge of the charity, medical and education sectors. Anna is listed as a Recommended lawyer in the Legal 500 (2019 Edition).

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