Taking on a commercial property or moving business premises an be an exciting stage in any business’ growth. However, commercial leases often last for several years and carry onerous obligations, which can leave business owners open to extensive liability.
Without the knowledge of how to navigate or negotiate a commercial lease, the process can quickly become stressful for any business owner. However, with the right advice, it is possible to avoid common pitfalls and secure a deal that’s right for your business.
James O’Donnell gives his advice for tenants looking to enter into a new lease.
Don’t rush in
Finding the right commercial premises isn’t an easy task and there is usually a long list of criteria to consider. These will likely include location, size, transport links and parking for employees amongst others. When you find somewhere that you think is suitable, it can be tempting to rush in and agree terms in haste.
Where possible, the best approach is to take your time and conduct your research properly. If you can, arrange to speak to other occupiers in the development or building about their experience and any potential issues they have. This may uncover invaluable information that might just mean you avoid an expensive mistake.
Be clear from the outset
The first stage in the negotiation of a lease is a set of “heads of terms”. This document outlines the terms agreed between the parties and is the first opportunity for you to negotiate the best deal available.
Rather than wait until further down the line, any essential requirements that your business has should be laid on the table at this point. Once terms have been finalised, it will be much more difficult to add requirements or make amendments.
Try for a rent incentive
Although the majority of landlords will be reluctant to offer a discount on the ongoing rent, it is common practice to negotiate an initial rent free period or a period of reduced rent, especially if the property requires internal renovations or a fit out prior to actually being used on a day-to-day basis.
Aim for flexibility
Depending on the nature of your business and how well established it is, your property requirements may change. In the event of the business growing rapidly such that you require bigger premises, or a downturn in business that means you no longer require as much space, having a degree of flexibility built into the lease is preferable.
It may be possible to agree a tenant only break right at a specific point during the lease term, or even a rolling break right, which would allow you to terminate at any time after a given date.
Beware of liabilities
Although you might expect that you would only be expected to return a property to the condition it was in when you first entered into the lease, this isn’t necessarily the case. If a property is not in full repair, it is advisable to have a schedule of condition prepared and attached to the lease to formally document the state of the property’s repair and therefore limit your repair liability when the lease comes to an end.
If you plan to undertake any significant alterations to the internal layout of the building, you should also be aware of your liability regarding returning the property to its original condition. Unless the changes you have made have added to the property’s value, the landlord may require you return the property to its original condition at your own expense before the end of your tenure.
In general, having a full appreciation for your repair and maintenance obligations is something that often goes amiss. Repair work on commercial properties often doesn’t come cheap, and liability can extend to all aspects of the property, including its roof and external fabric.
Avoid personal liability
As laid out above, commercial tenancies can carry a significant level of expense and risk. In order to limit any personal liability, you will need to carefully consider the named entity for all associated tenant liabilities, plus any liabilities for dilapidations.
Security of Tenure
It is important to check whether the Lease has the protection of the Landlord and Tenant Act 1954. The Act, if excluded, allows the Landlord to take back possession of the premises at the end of the Contractual Term without grounds for doing so. On the other hand, if the Tenancy is granted inside of the Act, then the Tenant will (subject to some mandatory grounds under the Act) have the right to a new Lease at the end of the Term subject to any necessary modifications and review of the market rent. For obvious reasons this could impact heavily on the viability or not of the premises.
O’Donnell Solicitors has a great deal of experience representing clients in drafting and negotiating leases for commercial premises. We pride ourselves on providing commercially astute, straight-talking advice.
To access our Commercial Property services please contact James O’Donnell on 01457 761 320 or email James O’Donnell at firstname.lastname@example.org or a member of his team.