Whether you are the landlord of a commercial property looking to let it out; or a tenant wanting to operate a business from a property, you will be looking at agreeing a commercial lease. Some leases are assigned from the previous tenant. However, in other cases you may need to enter into a brand new lease.
Here are our top ten considerations when negotiating the terms of a commercial leases.
Think about the property you would like to be included in the lease. Is it the whole of a unit or only part (for example one floor of a building)? The type of property will affect the type of clauses you will require in the lease. For example, if the lease is of the 2nd floor of a building, rights of access will be required over the common corridors and access ways.
Has the annual rent been agreed between both parties? Has this been valued based on the property’s rental value? If so, how will it be paid? Some parties prefer a monthly payment, others quarterly.
How long will the lease be for? This is something that both parties need to really consider. For landlords generally, the longer the lease, the better. This can also be beneficial for some tenants. However, other tenants (particularly when starting up a new business) may be looking for a shorter lease initially to see if the business is successful.
It is also worth considering whether you require a break clause, which means you can terminate the lease early.
Who will be responsible for repairs? Generally, landlords will expect tenants to be liable for repairs, particularly with longer leases. However, the extent to which they must repair the property and whether they are obliged to improve it depends on how the lease is negotiated.
Landlords may wish to restrict the Tenant from carrying out certain alterations to the property. However, Tenants may require certain alterations in order to set up and run their business. You may wish to consider whether any internal or external alterations will be required during the term of the lease. A Tenant may need to obtain consent from the Landlord for any proposed alterations.
What is the property to be used for? As a landlord you can limit the tenant’s use for the property to something specific. This may be especially helpful should you wish to avoid the property being used in a particular way. As a tenant, you may wish to keep the use of the property more open. This will assist should you wish to change your business or transfer the lease to another party who wants to run another business.
The buildings insurance for the property is also an important consideration. The insurance is normally paid by the tenant. However, some landlords prefer to insure the property themselves and claim it back from the tenant. You will need to consider what the insurance policy should cover.
8. Rent increases
If the lease is for a lengthy amount of time, landlords may wish to increase the rent during the term. There are various rent review provisions that can be agreed between parties and entered into commercial leases.
Are there any other obligations of the landlord and tenant which need to be referred to in the lease? Some landlords require their tenants to decorate periodically or pay utilities.
10. Transferring the lease
In the future, the tenant may wish to sell the business or to terminate their occupancy of the property. In these cases, they are likely to find a new tenant to transfer the lease to. The landlord may wish to restrict the transfer of the lease so to ensure that the new tenant is suitable. Landlords may also wish to consider whether they are willing to permit subletting.
Of course, commercial leases vary, so the parties to one lease may have different considerations to another. If you are considering entering into a new lease, our specialist commercial property team can help. Call today on 0800 988 7756.