Financial & Legal News

Do your homework before signing up to a commercial lease

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Finding the perfect premises for your business, is both exciting and a relief. Your business plans are starting to take shape and whether you are expanding or reducing your overheads, it is good to know that your business will soon be trading from a better or more suitable base.

But before you sign the lease agreement and crack open the bubbly, make sure you understand the terms of the lease and your legal obligations. Do your homework. In most cases, that will involve consulting your solicitor.

Do you understand the terms of the lease?

Lease agreements (commonly referred to as leases) are complex documents that deal with difficult rules of property law.

Leases exist to protect the tenant's and the landlord's rights in relation to the property. It is important to ensure that the terms are appropriate for you and the property, that you are able to comply with its terms and that the lease fits in with your business plans.

Non-negotiable? Then walk away

In some cases, if the terms of the lease are very onerous and not negotiable, a tenant might have no option but to walk away from the property. This might be a huge disappointment - but better that than to enter into a lease which could lead to problems in the future.

What are the key terms of a commercial lease?

All leases are specific to the particular property and set out the rights and obligations of the tenant and the landlord in relation to the tenant's occupation of that property.

In most cases, the landlord and the tenant will agree the 'heads of terms'. These are the key terms of the lease which form the basis of the parties' agreement. They include:

  • Who is the tenant
  • Details about the property including agreed boundaries
  • The rent payable and when
  • The length of the lease (the term)
  • Whether there will be a rent free period and the date of the first payment
  • Dates for rent reviews
  • The payment of a deposit
  • What the premises can be used for
  • Whether the lease can be assigned to a third party or sub-let
  • The condition of the property (on the first day of the lease)
  • Terms for renewal of the lease - and by how much the rent can be increased annually

Other key terms of a commercial lease

The heads of terms will be written into the terms of lease. Other important terms will include:

  • When certain notices must be given
  • Whether the landlord makes any warranties
  • Whether the tenant has security of tenure under the Landlord and Tenant Act 1954. In other words, does the tenant have the automatic right to a new term of lease at the end of the original term (and whether the landlord can contract out of this right)
  • Confirmation of who is responsible for ensuring compliance with important laws relating to for example, health and safety
  • When the parties can bring the lease to an end (the termination provisions) including whether early termination is possible. This is called a 'break clause' and is used for example, when a business thinks it might need to expand before the term of the lease is over
  • Who will pay utility bills
  • The tenant's rights and obligations in relation to common areas and whether there is a maintenance charge
  • Whether the tenant needs a guarantor
  • Repair and maintenance obligations and whether a schedule of dilapidations will be used at the end of the lease's term to ascertain what repair works the tenant needs to do

What can happen if you don't check your obligations?

Even a cursory glance at the terms above will explain why you should take care before signing up to a lease. Without a detailed lease review, you might unwittingly be agreeing to terms that do not work for your business over the longer term.

How can we help?

Sometimes our clients come to us with 'heads of terms' already agreed with the landlord. We will then ensure that the lease they enter into reflects those terms and protects their interests.

Established clients often come to us as soon as they have found a property they like. We then provide a review of the proposed lease. Often we will then help our client to negotiate the terms of the lease of carry out the negotiation on their behalf.

Our fixed price, Lease Review Service

We offer a fixed price service for reviewing your proposed lease and providing you with a lease report. This report helps you decide whether the lease is suitable and you can meet the tenancy obligations under the lease. To find out more, click here or speak to Karen Piontek.

Further reading

Please note that the information and opinions contained in this article are not intended to be comprehensive, nor to provide legal advice. No responsibility for its accuracy or correctness is assumed by Pearson Solicitors and Financial Advisers Ltd or any of its members or employees. Professional legal advice should be obtained before taking, or refraining from taking, any action as a result of this article.

This blog was posted some time ago and its contents may now be out of date. For the latest legal position relating to these issues, get in touch with the author - or make an enquiry now.

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