01 July 2007
As a potential commercial tenant, you should be aware of the sort of issues that can make the difference between a reasonable lease and a troublesome one.
• Do the premises have all the rights you need, e.g. parking facilities or 24-hour access? Will your premises have their own meters and mains supplies, or are these located in a part of the building you can't reach?
• Are you going to carry out works to the premises? If so, agree these upfront and document them as part of the initial deal or you may need to obtain landlord's permission thus incurring additional costs and delays.
• Is the lease long enough? The landlord may want you to take a long lease. You might only want a shorter term (perhaps 3-7 years) with a right to terminate the lease early. Such flexibility may mean a higher rent.
• If you do need the right to terminate early, make sure this isn't hedged with impossible conditions — read the small print!
• Will you have security of tenure? Business tenants generally have the right to renew their lease at the end of the term (subject to certain exceptions), but nowadays some leases exclude this right. So, make sure you understand your position fully.
• Are you required to give a rent deposit or a personal guarantee? Think carefully about the impact on cash flow and personal liability as guarantor. Many start-up businesses prefer to take a lease in the name of a company, with a cash rent deposit.
• If giving a rent deposit, consider whether it should be released if you prove to be a good tenant and your accounts show that your business is on a sound footing.
• If the lease provides for rent to be reviewed, consider whether this should be a simple inflation-linked increase, or linked to comparable premises in the open market.
• If the premises are part of a larger building, check the service charge accounts for at least the previous 3 years and try to negotiate a cap the on service charge for at least part of the term.
• Even if the premises aren't perfect now, the wording of the repair clause might require you to hand them back to the landlord in first class condition. Ask the landlord for your repairing obligations to be limited to the current state of the premises, recorded in a detailed "Schedule of Condition" supported by photographs.
• Find out what your business rates liability will be. Check with the Valuation Agency to see if the premises are separately rated. If not, you will be liable for a proportion of the business rates for the whole building.
• Make sure your hands are not tied by complicated tests, which limit your right to underlet or pass the lease on to a third party.
• And finally... we always recommend that you take professional advice. Ask a surveyor to negotiate the lease terms for you. Before agreeing terms, consult an expert commercial property solicitor, otherwise you could face expensive negotiation as you try to back out of a bad deal! Lastly, always have the premises professionally surveyed to make sure that you are not taking on unexpected liabilities.
Michael Larcombe, a partner in the commercial property team, can provide more information on leasing issues. Contact Michael at comproperty@bpcollins.co.uk or 01753 279 087. |
