COMMERCIAL LEASES GUIDE
If you’re considering new office space for your business, there are several considerations that you should keep in mind prior to entering a deal. Here are 10 key points to be aware of which may help you secure the best property for your business needs.
1. Outline your key objectives
Securing the perfect location can be an exciting time for a business. As such, it’s important to ensure that your judgement isn’t clouded as to what is truly important. Do your research and get an understanding of the average cost of commercial space within a catchment area (A surveyor can help with this). Some businesses will want to focus on the physical space and whether it can satisfy their commercial requirements. Prioritising the needs of your business will maximize your chances of finding your ideal property.
2. Confirm planning permission
Whilst focusing on the technical details of a lease, you can often take for granted whether you a permitted to use the premises for your course of business. Instruct a solicitor to carry out searches at an early stage of proceedings to avoid you wasting months of unnecessary effort.
3. Terms of business
The framework of a successful commercial lease is built upon having clearly defined business terms. A key factor to take into consideration will be rent. Having done your research on average costs within the area, you should aim to put yourself in a position that is proportionate to other tenants in the building/area who are occupying a similar space to the one you desire.
4. Negotiation opportunities
Identify the strengths and weaknesses of the landlord’s position. Consider the economic climate and the effect it may have on your landlord’s property. Ultimately a landlord would prefer for a unit to be occupied as opposed to being empty. If you can identify that parts of a building have been unoccupied for some time it may present you with a chance to negotiate more favourable rent terms. Make sure that all negotiated terms are in writing and verified by your solicitor.
5. Service Charges/Rent
Commercial Leases contain service charges that enable landlords to recover maintenance costs from a tenant. It’s worth speaking with your solicitor to identify services that should not be included in the overall charge. With regards to agreeing a specific figure for rent, most landlords may be willing to factor in a rent-free period to enable a smooth transition into the property. If a rent-free period is not on the cards, you should consider including a clause to freeze the current rent figure upon the lease renewal.
6. Know your property
It is important that you understand what you will be liable to repair prior to embarking on a new lease. “Wear and tear” is inevitable in all properties however you will want to ensure that you are not responsible for fixing a problem that is not your responsibility. If it’s not practical for the landlord to rectify the problem prior to taking up the lease, you could suggest an additional rent free period to cater for the expense you will incur in carrying out repairs.
7. Lease Renewal terms
It is important to consider whether you envisage being in your property long term. This is because not all landlords will offer you an automatic renewal of your lease (it is possible to exclude this option from a contract). If you favour the security of a long-term plan, it is important to ensure that the terms of your lease incorporates a renewal clause. Your solicitor can advise on the process for negotiating a new lease.
It is important to plan your options should you wish to leave your property unexpectedly. Cancelling a lease before the end of its completed term is a difficult task and most landlords are unlikely to agree to an early cancellation. Subleasing will allow you to transfer part or all your usage rights to a 3rd party (Subtenant). Assuming your landlord agrees to a sublease, it’s worth noting that you will remain liable for any non-payment of rent or damage to the property incurred by the subtenant.
9. Rent review
If your lease is over 3 years, it will typically include a rent review clause allowing the landlord to implement a rent review at set periods of time during the lease. This will normally result in an increase in rent. Whilst this could be viewed as negative to a tenant, it may also provide security if a long interval between reviews can be negotiated with the landlord.
10 . Costs
Where possible you should try to agree for each party to cover their respective costs. A failure to do so could result in added expense for either party. The overall cost will depend on the current state of the site you are moving to and whether you are liable for any repairs, alterations or additional covenants to make the property fit for your desired purpose. An open dialogue with your solicitor at an early stage will enable you to implement a clear cost strategy.
Shazda Ahmed is the Managing Partner of the Business Services practice in Manchester. She represents business owners in a range of practice areas, including contract drafting & disputes, landlord tenant law, real estate, new business start-ups.
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