Renting a commercial property is usually one of the biggest investments a business will make. Commercial leases are complex, however, and there are a number of issues to be wary of.
It is important not to rush into signing a commercial lease without taking legal advice. The document will generally include onerous obligations on the part of the tenant, with risks that include being unable to exit a tenancy agreement when you wish to or being liable for extensive repairs to the property.
At HPLP Solicitors, our commercial property experts can advise you on the terms of a commercial lease and negotiate these on your behalf to ensure that the agreement is as favourable as possible.
Our tips for the key points to consider include the following:
Make sure the lease term is right for your business
It is important to try and agree on the right lease term for your business. You will not simply be able to give notice when you want to leave, so if you have signed a lease for a period of ten years, then you will have a liability to pay the rent for the whole of that period.
You should also find out whether or not you will have security of tenure, or the right to renew your lease at the end of the fixed term.
Understand what the position is with regard to assignment and subletting
One way of dealing with a lengthy lease that you no longer want is by assigning it to a new tenant or letting it to them yourself. The landlord will need to approve the new tenant.
If you sublet a property, you will remain liable under the lease for everything that you have agreed to, such as payment of rent and repairs. With the assignment, the new tenant will take over these obligations.
If you believe that you may want to assign or sublet the premises, you should ensure that the lease you sign permits this and understand what rules the landlord has imposed.
Decide whether you want a break clause
A break clause will allow you or your landlord to end the lease part way through the term. This can give you the option of leaving and ending all of your obligations, but you need to be aware that your landlord could also choose to end the lease and try and negotiate a new lease at an increased rent.
It is essential that break clauses are carefully drafted as there have been many legal disagreements over imprecise wording.
Be careful what repairs you agree to carry out
You may well be asked to sign a full repairing lease, meaning that you will be liable for all of the repairs needed. It is vital that you record the state of the property before you take it on. This should be done by having a surveyor’s report prepared and adding a Schedule of Condition to the lease.
At the end of the term, the landlord will prepare a schedule of dilapidations, requiring works to be done to remedy defects. It is important to ensure that you are not liable for any pre-existing disrepair, for example, a leaking roof.
Negotiate the rent review clause
The lease may include details as to how often rent can be reviewed and on what basis the landlord can increase the rent. You should ensure you understand these clauses in the lease and that they are as favourable as possible.
Ask for service charges to be capped
You will generally be required to pay for expenses such as maintenance, cleaning and repairs to communal areas by way of a service charge. It is a good idea to try and negotiate for this sum to be capped; otherwise, you could end up with a substantial and unexpected increase should a major issue arise, such as the need for a new roof.
There are numerous pitfalls when it comes to taking on a commercial lease, and some of them have the potential to push a business into insolvency. It is essential to take professional advice before signing a lease to ensure you understand the implications.
Get in touch with our commercial lease solicitors in London
At HPLP, our commercial property team are highly experienced in the complex area of commercial leases. As well as legal expertise, we offer bespoke, boutique service, focused on your business needs. We will take the time to understand your organisation and ensure that the lease you sign is as beneficial as possible.
If you are thinking of taking on a commercial lease and you would like to speak to one of our expert commercial property solicitors, ring us on 020 7553 9000 or fill in our enquiry form, and we will call you back.