22 June 2016
Commercial leases: the pitfalls to avoid
Commercial property partner Michael Larcombe, alongside senior associate in the property litigation team, Sarah McLoughlin, presented at the Five Counties Conference in High Wycombe earlier this year. Now in its 37th year, the conference saw close to 350 surveyors attend to hear a range of technical and professional talks.
Michael and Sarah guided delegates through a legal ‘roadmap’ of the regulatory and statutory issues that should be considered at different stages of a lease to avoid pitfalls.
Here Michael has summarised some top advice for commercial tenants.
Room for growth
Before taking space, check if the landlord can rent out by floor so when your business grows, your office space can too.
You should also check whether the premises has the most up to date infrastructure for your needs; foe example, raised floors for sockets, suspended ceilings for cabling as well as the speed and adaptability of broadband and other technology.
Length of lease
Leases typically last five years. If this is too much of a commitment, tenants can assign the premises to another business during this time.
Be aware, however, that some new tenants might be unwilling to assume building dilapidation liability (and the costs this could bring) if taking an assignment of the lease for a shorter period.
Some businesses may want to downsize. It’s worth ensuring that the office space can be sublet to another tenant. It might be worth contacting a local business organisation to see if it would develop an online forum, whereby businesses can talk directly to each other about swapping premises.
Impacts on the business
It can be tempting to move if unhappy with the premises, but before taking that leap, businesses need to consider Stamp Duty Land Tax (which can be considerable), potentially losing employees if the new location is too far away and the practical costs of moving – all could have a significant impact on the business.
Forfeiture is frequently used by landlords to terminate commercial leases, but it is not always the best option for them or the tenant.
Criminal liability, claims to avoid forfeiture and financial loss by a tenant are possibilities if a lease is terminated incorrectly. Legal advice should always be taken by both parties.
Minimum energy efficiency standards
The 2015 Energy Efficiency Regulations has set out minimum energy efficiency standards (MEES) for England and Wales.
From 1 April 2018 these regulations make it unlawful for landlords to grant a new lease of properties that have an energy performance certificate (EPC) rating below E.
Tenants should check with landlords what building work may be planned to make the building fit for purpose and whether renting out a new floor or area is a possibility to avoid disruption. After 31 March 2023 existing leases of premises rated E or below could load upgrade costs onto unwitting tenants. Seek advice from a surveyor if you're a tenant and have concerns in this area.