10 Top Tips for Negotiating a Commercial Lease

The search is over – you’ve found a commercial property that you want to rent. It ticks all the boxes (or most of them), meets your needs and provides room to grow. Now, you’re probably eager to move in and get back to business as usual. First, there’s the important task of negotiating the commercial lease.

The lease is a legally-binding contract, between you and the landlord, which documents your rights and responsibilities as a commercial tenant.

Whatever your property needs, securing a strong commercial lease is a vital building block for your business’ success. So it’s important to get it right.

Here are our top tips for negotiating a commercial lease to help your business thrive:

1. Seek Expert Support

Once you’ve found your ideal business premise, it may be tempting to jump straight into negotiations with the landlord. But don’t go it alone! Appoint a surveyor or agent to advise you on appropriate rent levels and, where possible, manage negotiations for you.

Having commercial property experts on your side ensures you get the best lease terms for your business.

2. Beware of Business Rates

Your lease will include details about the payments associated with your property, such as rent and service charges. It’s also important to be aware of the ‘Business rates.’

Business rates are a tax applied to non-residential properties in England and Wales. These rates can add an average 40% to your rent (Property Industry Alliance, 2017). It’s no small sum so be sure to factor this into your running costs.

Can you get a discount? Certain businesses are entitled to discounts on their rates. For example, those operating in some rural areas, those relocating to ‘enterprise zones’ and small businesses can apply for ‘business rates relief.’ However, strict legal requirements apply, so it’s worth seeking legal advice and support with your application.

3. Long vs Short Lease?

Lease lengths range from around four years to a whopping 25 years. This said, shorter leases are more common and usually better for tenants because they provide greater flexibility. Whereas, a longer lease brings long-term liabilities. But how do you decide which length is best for you?

Consider how the lease reflects your business and expansion plans. For example, if you’re just starting out, a short lease may be preferable as it allows you to move on as your business grows. On the other hand, if you plan to invest a lot of money in the property (e.g. making major adaptions) a longer lease may give you greater security.

4. Take a ‘Break Clause’

Break clauses are another increasingly common feature in commercial property leases. And with good reason. This provision allows you (or the landlord) to end the lease early if needed (especially useful if you have a longer lease).

Be aware that the terms and conditions vary and can make exercising this clause difficult. Seek legal advice to ensure the break clause benefits you and your business.

What could be better than a ‘break clause’? A tenant-only break clause, of course! A tenant-only break clause does what it says on the tin i.e. only the tenant can end the lease early. This puts the power in your hands so it’s worth negotiating this tenant-friendly feature into your lease.

5. Understand Your Practical Responsibilities

The terms of your lease determine your rights and responsibilities to repairs. Some key terms to watch out for include:

• ‘Full repairing lease’ – You will be responsible for all repairs as they arise. Therefore, it’s worth requesting a ‘photographic schedule of condition’ to document the property’s state of repair at the start of your contract.
• ‘Keep in substantial repair’ – In this case, you are also obliged to fix any repair issues caused by the previous tenant or landlord.

Repairs can be a big financial drain so it’s a good idea to do your own survey. Before signing anything, visit the premises to check if the landlord’s promises match the reality.

6. Negotiate a ‘Rent Free Period’

A ‘rent-free period’ is a time during your tenancy (usually at the beginning) when you don’t have to pay any rent. This may sound too good to be true but it’s not! Commercial landlords offer rent-free periods for many reasons, including:

• As an incentive to attract tenants
• To cover the costs of repair work the tenant will need to do
• To cover the cost of required fit-outs to make the building ‘business ready’

It’s worth negotiating for a rent-free period. After all, the best things in life are free!

7. Is Planning Permission Needed?

Imagine signing a lease on your dream property, only to discover you can’t make the changes you wish, due to planning restrictions. Lengthy planning issues can delay or completely derail your business plans. Avoid this fate by investigating what permission is needed before signing the lease.

There are many reasons for planning restrictions including, the property’s purpose, location or listed-building status. Planning permission will usually be required for any alternations or change of use. A conveyancing expert, such as your surveyor or lawyer, can do searches and advise you on planning requirements.

8. Rent Deposit vs Guarantee

Beware any landlords who ask you for both a rent deposit and personal guarantee – this isn’t the norm and it’s not a legal requirement. It should be a case of you providing either/or (or neither!). From the tenant’s perspective, it’s usually preferable to pay a rent deposit over a personal guarantee, so factor this request into your negotiations.

9. Mind Your ‘Heads of Terms’

The ‘Heads of Terms’ documents the agreed principles which all parties (landlord & tenant) wish to be reflected in the final lease contract. It’s important to get this right as it can be difficult to change the terms once they are set out. Get the agreed terms in writing and be sure to get them reviewed by your lawyer before agreeing to proceed.

10. Seek Legal Advice

Securing a strong commercial lease can be a complex and difficult process. This is where quality legal advice really counts. Hire a commercial property lawyer to review your lease before you sign anything. It’s worth appointing your lawyer at the beginning of the negotiations process. This way, you can seek their legal advice on the points mentioned above.

At Goldstein Legal, we use our expertise to achieve lease terms that suit your business objectives and priorities. We can support you throughout the negotiations process and provide essential legal services to help your business thrive.

Our services for tenants, include:

● Negotiating and reviewing the ‘Heads of Terms’
● Reviewing your commercial lease contract.

Our services don’t end once the lease is signed. We can also support you with:

● Negotiating lease renewals or terminations
● Transfer of property interests for franchise resales
● Exercising your right to use break clauses
● Advising on your rights and responsibilities throughout the tenancy
● Resolving landlord/tenant disputes

Find out more about our services for tenants and landlords here.

Goldstein Legal is a straight-talking, commercial law firm based in Berkshire. Our legal services cover commercial property, business & commercial, employment and franchise law. Our expert legal team work hard to understand you and your business. We offer no-nonsense, jargon-free advice and tailor our services to meet your commercial needs.

Get in touch for a free initial consultation with one of our commercial property lawyers today.

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