Ten Tips When Negotiating a Commercial Lease in Your Position As a Tenant

1. Make sure that you have negotiated full heads of terms with the Landlord’s commercial agent. The reason for this is that it is frustrating as a Tenant if you instruct our commercial property lawyers to negotiate the lease on your behalf – only to find out that a major point such as a personal guarantee from company directors prevents the lease being signed. If this point is addressed directly at the heads of terms stage then hopefully this issue never arises. Our commercial property lawyers all have precedent heads of term on negotiating a new commercial lease and will be more than happy to send you a copy.
2. If you are taking a lease in a company’s name the company has the benefit of limited liability. Please note that if the company suffered an insolvency event and went into administration or liquidation the Landlord will find it extremely difficult to claim arrears of rent and service charge. The Landlord will typically ask for a personal guarantee from the directors for the lease. You may choose not to do this as it will last for the duration of the term of the lease. Instead what can be offered is a six or three month rent deposit deed – whereby three or six months worth of rent is deposited with the Landlord in a separate designated interest bearing account which the Landlord can then access if the Tenant is in default of various terms in the lease.
3. It is important to know the extent of the property you are taking a lease of. If you are only taking a lease of part of a building you will require the landlord to covenant to repair the other parts of the building. Typically the Landlord will seek to recover any costs in this with a service charge. If you are taking on a lease of the whole of the property it will generally be on an FRI lease basis and you will have responsibility to repair the whole building which will include the roof space.
4. Landlords will often want a tenant to sign as long a lease as possible to increase the investment value of their building. Nevertheless in your position as a tenant you will want flexibility. Therefore we would strongly recommend that you seek to negotiate a “Break clause” which allows you to serve a notice on the landlord terminating your lease. Our commercial property lawyers will always recommend that this notice is unconditional, meaning the validity of the notice should not depend on the Tenant having paid its rent and having observed the other terms of the lease.
5. The Landlord and Tenant Act 1954 part II provides tenants with statutory protection. This means that any tenant occupying business premises for longer than six months does not need to leave the property at the end of the contractual term of the lease but have the statutory right to remain in the premises and ask the court for a new lease. It is akin to the situation of a sitting tenant in a residential property. Therefore Landlords seek to have the act excluded by way of notices.
6. Landlords will seek to insert a clause in the lease which allows them to increase the rent at certain specified periods throughout the term of the lease. This is called a rent review clause. Our commercial property lawyers will urge you not to agree to this if the lease is shorter than five years.
7. When you are negotiating the terms of the lease with the landlord make sure that you make enquiries of the landlord to check that the property benefits from an authorised planning use for the purposes you intend to use the property. In any case our commercial property lawyers will raise Commercial Property Standard Enquiries (CPSE’s) which will illicit this information and also we will carry out a local search, which will reveal planning uses.
8. It is strongly recommended that you agree with the landlord that your lease can be underlet and assigned. Most Landlords will not allow you to underlet or assign only part of a lease, however they will generally give you consent to assign or underlet your lease provided you seek their prior written consent.
9. As a tenant you will be concerned that at the end of the term of the lease that potentially the Landlord will serve you with what is know as a dilapidations claim. In order to minimise the level of this claim at the end of the lease we would recommend that a schedule of condition (a list of photos showing the state of repair of the property at the time you take the lease on) is attached to the back of the lease and the obligation is to put the property back into the same state of repair as is evidenced by the annexed schedule.
10. If you intend or need to fit out the property for your proposed tenancy then we would recommend that you have all your drawings together with the details of your fit out ready for the landlord to approve so at the start of the lease we can ask for what is known as a licence to fit out from the landlord.