If you’re thinking of becoming a commercial property tenant it is vital to understand what you are taking on. Signing up to a commercial lease is very different to renting residential property, with a range of responsibilities that can come as a big surprise if you’re not prepared.
Here are ten questions that every prospective commercial tenant should ask before agreeing to any tenancy:
1. What am I actually leasing?
This is very important because it clarifies exactly what areas you are able to use for your business and it usually indicates what you may be liable to repair. Are you taking an ‘eggshell’ lease, or the whole of a property including the roof and surrounding land?
2. Have I been given an incentive to lease the property?
Tenants are often offered rent-free or reduced rent periods and other similar incentives. If you have agreed anything with the landlord, make sure this is dealt with in the formal lease documents. Your legal adviser can talk you through the different options for dealing with these incentives and how best to protect your position.
3. What have I agreed to ‘keep in repair’?
If you are to ‘keep the property in repair’, you are actually taking on responsibility to ‘put and keep’ the property in repair. This means that you could be asked by the landlord to carry out works in relation to any disrepair that existed before you took the lease.
If you are to keep the property in ‘good repair and condition’, this is more onerous as you can be required to carry out works to the property, even where there is no disrepair.
You can seek to limit your responsibility when negotiating the final terms of a lease and your legal adviser can explain some options.
4. How long will I be tied into the lease for?
Business may be booming for now, but just keep in mind that things can change and you will be responsible for rent for the whole term of the lease, even if things take a turn for the worst. This could ultimately lead to you and your business being removed from the property and, ultimately, insolvency.
5. Can I terminate the lease early?
Break clauses in the lease can help you to reduce the length of the term, but consider any provisos or conditions which will limit your ability to use this. A common one is that you must be up to date with your rent up to the point of the break in the lease, so you cannot normally rely on a break clause as a ‘get out of jail free’ card if you find yourself in financial difficulty.
6. Do I have security of tenure?
Depending on the way the lease is drafted, you may have the right to renew your lease at the end of your fixed term.
You may also acquire security if you remain in the property after the end of your term and your landlord continues to accept your rent payments. This does of course depend on the circumstances, so you should not assume you have security without first taking legal advice on your specific circumstances.
7. Can I transfer the lease or sublet?
Many commercial landlords allow tenants to transfer their lease or to underlet to a third party, but only with their consent and subject to certain conditions. This may include you being a guarantor for the new tenant, plus the landlord is likely to charge you for seeking their consent.
8. Am I allowed to alter any part of the property I am leasing?
Alterations are often prohibited for any exterior or structural part of the property and internal non-structural alterations are usually commonly allowed with the landlord’s prior written consent. When giving consent, the landlord may impose numerous conditions requiring you to undertake the alterations in a certain way, and you may be required to remove your alterations at the end of the lease, which can be very costly.
9. What other payments must I make? Insurance, service charge, VAT?
Landlords very often insure the property and tenants reimburse the Landlord for the policy premium.
Is the landlord charging you for any services supplied, for example for the repair of any common parts in a building? How is your proportion to be calculated? Is the landlord limited to what expenses can be incurred? Service charge provisions in leases are usually very detailed and you should check the position with your legal adviser.
10. Is the rent fixed for the whole of the term?
Does the landlord wish to review the rent at any time? If so, on what basis? What if there is disagreement – how is this to be resolved? All of this should be dealt with in the lease itself. Make sure you know the mechanism for rent review in your lease, so that when the landlord raises the issue you know where you stand and can plan ahead financially.
These are some of the major points that you need to consider when taking a lease, but there are many other aspects that need to be covered, including title investigation, stamp duty land tax, registration requirements, deposit arrangements, required consents, satisfactory search results and replies to enquiries.
If you need advice on a tenancy arrangement, please contact one of our commercial property solicitors at any of our three offices in Retford, Bawtry and Ollerton.
Bawtry: 01302 710555
Ollerton: 01623 860581
NB: The above is intended as a guide to some of the major points to be considered when entering into a lease and is not intended as advice. If you think that any of the points mentioned above may be relevant to your situation, you should contact your legal representative for specific and tailored advice.