Written by: John Padgett on Friday 19/02/2016
Whether you’re setting up in business for the first time or are looking to expand into larger premises, the process of negotiating a commercial lease can be fraught with difficulties. We look at the most important points to consider and ask whether it’s possible to negotiate a better deal for yourself.
Depending on the nature of your business, the length of the lease you require will vary. Typically, retail leases extend to around 10 years, while office space leases begin at five. However, leases can also run from one or two years up to 25. If you’re interested in long-term stability for your business, negotiate the amount of time you feel is appropriate.
A break clause is also important to consider. These usually come into effect at around three to five years. If you do break before the agreed length of time of the full lease, you will still be liable to pay stamp duty, regardless of any break clauses.
The Landlord and Tenant Act (1954) gives you the right to choose whether to have the right to automatically renew your least at its expiry, or to be excluded from such protection. If long-term security it important to you, make sure that you have a renewal right written into any contract you sign.
If your lease is longer than five years your landlord may require a rent review after this period. Some may even seek a review after as little as three years. Examine the lease carefully to see what terms the landlord imposes. Depending on market conditions, it may even be possible for you to negotiate the rent down rather than up!
Also consider asking for a rent free period at the start of your contract – this initial period is where most financial cost is incurred and a couple of months without the additional burden of rent may be the boost your business needs. Because he or she won’t have to pay business rates during this time, your landlord may look favourably on this suggestion too.
Repair costs and service charges
Carefully check the lease for ‘full repairing and insuring’ terms which may mean that you’re responsible for making extensive repairs, the benefit of which you may not fully see if your lease finishes soon after. Clearly, it’s important to maintain the property to a good standard but, in cases where the landlord is responsible for maintaining the exterior of the building, you should also be wary of incurring extra service charges they might want to pass on to you. Try to limit these to routine repairs and maintenance as opposed to structural repairs.
A commercial lease is a complex document and it’s vital that both tenant and landlord get it right. It should be clear and set out precise legally-binding obligations in order to achieve peace of mind for both parties. And while it’s possible that you can negotiate on your own behalf, if you have any doubts whatsoever, it’s always advisable to seek clarification and guidance about your legal position. That’s where our team of experts come into their own. Eddisons can offer you advice, interpretation and general guidance on all aspects of negotiating a commercial lease to help your business prosper from the outset.
A commercial lease is a complex document and it’s vital that both tenant and landlord get it right.