Things to Consider When Negotiating a Commercial Lease for your Business
Perhaps one of the biggest decisions you can make for your company is where to base your operations. You may be a start-up looking to negotiate your first lease or a business that is looking to move premises, whichever category you fall into you will want to ensure you negotiate the most favourable terms for continued company success.
We have compiled a list of 6 things to take into consideration when negotiating your lease as well as one bonus tip that is often overlooked in the commercial property arena.
Check your Termination Clause
Running a successful business often requires you to be able to be adaptable. If you need to move premises at short notice or want to take advantage of a period of profitability for expansion, then the termination clause is likely to factor into this decision-making process. Read the terms of your commercial lease carefully; ideally you will be looking for a clause that allows you to remedy a default in the event of eviction. Specifically, one that permits you to settle one month’s rent rather than pay the total owed on the lease. Early exit penalties should also be examined to make sure there are no nasty surprises if you choose to terminate the lease early.
User Class of Premises
One overlooked but key area to look for and ascertain when negotiating your commercial lease is the “permitted use” of the premises. These are governed by the local authority and denote how the premises should be used. Some leases have user clauses that go beyond the regulation and are restrictive. For example, some premises may be noted as being used as a “restaurant” in the lease but under the local authority guidelines as a retail space. This type of clause is common in fitted shops as a Landlord may not wish major renovation to occur within the premises. It is best to check these details and ask for any permissible amendments to be made prior to signing the lease.
Seek Favourable Clauses
As mentioned above adaptability is often the key to running a successful business, if you need to move out of the premises in the future due to business requirements, negotiating a sublease clause could be vital to continued success. A sublease clause allows you to sublet the premises to another tenant. There are complicated rules around this and a Landlord may insist on a larger rental payment being charged despite government guidelines advising strongly against this. Other key considerations are that your company is allowed to sign and brand the premises as well as insisting the Landlord complete necessary work before the premises is occupied.
Research the Local Market
Don’t take a decision on the premises without first finding out the leases available in comparative commercial properties in the local area. This will ensure you are going into the negotiation with comparable rates and could potentially be the key bargaining chip when negotiating an advantageous rent. Remember that leases often include a rental increase clause (Rent Review) which is normally conducted at regular intervals during the lease. Look at surrounding commercial lets and find out the caps on their rental increases and insist on a cap being applied to your lease if it hasn’t already.
Length of Lease
Another major concern when deciding on a lease is the length of time you’re tied in. Is the length of time on the lease conducive to your future business plans? If you’re planning growth and expansion, does the premises have room for this or are you likely to need to terminate the lease early? A two-year lease is often beneficial for smaller businesses with an option in the contract to renew. This allows you to actively assess the business needs in respect of the premises that is being operated from.
Cost of Repairs
The last key part to check on your lease is finding out who is responsible for repair work. A particular bit of wording to be mindful of is “put and keep” as this means that a tenant could be obligated not only to keep the premises in a good state of repair (as is usually the case) but also put it into a good state of repair if it is not already in one at the start of the lease. This clause could have hefty financial implications and should not be entered into lightly. If a landlord is responsible for repairs and maintenance this will be outlined in the lease along with any limitations such as malicious damage being caused by the tenant.
Our bonus tip is to find out the business rates before committing to a lease. Something as small as renting a commercial property in a different postcode can save you thousands each year.
At Woodgrange Solicitors we are trusted by commercial clients with their business lease requirements, we work actively to ensure your continued success. To find out more call us now for a no obligation discussion.