Entering a commercial lease is a major undertaking. The lease is likely to be complex and it is important to consider carefully the implications of signing. In particular, there are several key clauses that could cause difficulty in the future and you should make sure that you understand exactly what you will be taking on and negotiate where necessary to ensure that the lease is right for your needs.
Read along to learn about the top 6 common commercial lease pitfalls to avoid as a landlord and how to protect yourself from them.
1. Term of the lease
A long lease is likely to be cheaper than a shorter one, but you need to be sure it is the right option for your business. You will not be able to simply hand in your notice and leave when you want; with a commercial lease, you will be liable to keep paying the agreed rent until the end of the lease.
You can negotiate the inclusion of a break clause, which will give you the opportunity to end the lease partway through, but you will generally need to pay more for this.
2. Assignment and subletting
One other way out of paying rent yourself for the entire period of the lease is to assign the lease to someone else or to sublet the property should you want to leave. The lease will have to permit this and it will generally set out the procedure to be followed, including obtaining the landlord’s approval of the new tenant.
As the original tenant, you are likely to be required to sign an authorised guarantee agreement in respect of an assignment, meaning that you would remain liable for compliance with the lease, including financial liability for payment of the rent. If the terms of the lease were breached, the landlord could require you to take back the lease.
For more information, see How to get out of a commercial lease early.
3. Rent reviews
The lease will set out how rent reviews will be dealt with, including the frequency and how the new rent will be calculated. This might be based on a valuation of the property or a fixed rent increase. Alternatively, it could be calculated with reference to the Retail Price Index.
4. Repairing obligations
A major liability can arise in respect of repairs and maintenance of the property and it is important to ensure that as a tenant you limit your liability as far as possible. A commercial lease will include a clause requiring you to keep the property in good and substantial repair and condition. If you are leasing the entire property, this will generally include the whole fabric of the building, including the outside. If the lease is a full repairing and insuring lease, you will need to insure the property and carry out all necessary repairs, maintenance and decoration.
When it is time to hand back the property, you will be required to return it in good condition. There is a risk that you could be liable for putting the property in good condition even if it was not in good condition when you took it on. For example, if the roof was in poor shape when you leased the property, you will be required to put this right before you leave.
The way to avoid what could potentially be a huge liability is to ensure that you have a schedule of condition or a condition report drawn up by a qualified surveyor and attached to the lease. The lease should then stipulate that you are only required to carry out work to put the property back into the condition it was when you took it on.
5. Service charges
If you will be renting part of a building, you will be charged a service charge which will cover items such as maintenance, buildings insurance, cleaning and security. Ideally, you should negotiate for the potential amount of service charge to be capped. Without a cap, you could face a substantial bill if a large item of expenditure is required, for example, a new roof.
6. Permitted use
The lease will contain a user clause setting out the permitted activity at the premises. This will include issues such as the type of business you can carry out, what can be stored on-site and what changes will be permitted. When agreeing to this clause, you should think about what you might want in the future, for example, if your business were to expand or change.
Contact our commercial property solicitors
At Witan Solicitors, we have a strong commercial understanding and we will work with you to identify exactly what you need from a commercial lease. We can negotiate on your behalf to ensure that the lease is beneficial and that your rights and interests are protected as far as possible.
If you would like to speak to one of our expert commercial property solicitors in Birmingham, Northampton or London, email us at info@witansolicitors.co.uk or fill in our contact form.
If you’ve found our article on the top 6 common commercial lease pitfalls and want to know more about commercial landlords, check out the further reading below:
The Landlord’s Responsibilities in a Commercial Lease | Can a Landlord Enter Property Without Permission | Property Litigation Guide | How to Evict a Commercial Tenant Without a Lease
