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Commercial Property Leases

Introduction

Renting commercial space can be a major commitment for a business. Indeed, the success or failure of a business may be dependent on the terms of its legally binding lease. Often, significant amounts of money are at stake. For example, a five year lease for a shop with a rent of £20,000 per annum equates to a commitment of £100,000 in rent. Not to mention other possible costs such as insurance, service charges, maintenance, business rates etc. Before you sign anything, make sure you understand the terms of the lease and the commitment being made.

Lease Terms

The following items are commonly covered in a typical lease. It is not exhaustive so be sure to pay attention to all terms:

  1. the length of lease (often called the ‘term’), when it begins and whether there are renewal options. Note that under part II of the Landlord & Tenant Act 1954, a business tenant generally has a statutory right to renew its lease at the end of the lease term. The parties can, however, contract out so that the tenant does not have the right to a new lease. Landlords often wish to contract out for short-term leases;

  2. rent, including any i) rent free periods; and ii) allowable increases (normally ‘rent reviews’) and how they will be calculated;

  3. other costs such as insurance, business rates, maintenance and parking. These may or may not be included in the rent;

  4. the security deposit and conditions for its return;

  5. the space being rented, including common areas such as hallways, rest rooms, and elevators (often indicated in a plan);

  6. rights (or not) to improve, modify, add fixtures etc and who will own them after the lease ends (generally, the landlord does);

  7. specifications for signs, including where you may put them;

  8. obligations to maintain and repair the premises;

  9. restrictions on assignment and/or subletting;

  10. termination procedures.

Negotiation

Typically, you’ll be working with a lease that’s been written by the landlord or the landlord’s lawyer (and you can be fairly sure that neither one of them will be looking out for your best legal or business interests). In order to redress the imbalance between the parties, you are likely to want to negotiate changes.

Contrary to what some landlords may have you believe, there is no such thing as a “standard” commercial lease and there is no reason why it should not be negotiable. Just how negotiable will often depend on bargaining power and non-legal issues such as the property market (eg. is it a landlords or tenants market?). Within the range of negotiability, however, your knowledge of lease clauses might determine the success of the lease negotiation.

Leases can be full of legalese (often more than other commercial agreements) so if you do not understand anything, you would be well advised to take advice.

This should not be relied upon for legal advice. If you would like any further information or advice please email richard@clariclegal.co.uk.

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