Commercial leases A guide
It is always advisable for a solicitor to read a commercial lease on your behalf before you sign it or renew it, to help ensure there will be no future surprises.
Leases do tend to be more landlord friendly and often require the tenant to take on full responsibility for the property, which can have many consequences and costs that they may not have anticipated.
It is firstly important to check the heads of terms have been correctly included in the lease by the solicitor drafting it on behalf of the landlord. Make sure everything you have agreed verbally with the landlord is included and query anything you are not sure about, or which is incorrect.
Next look at costs such as the requirement for a rent deposit. Will it be protected by a rent deposit deed and also what do you have to do to ensure it is returned in full at the end of the lease. It is very likely if you are leasing part of a building to have to pay service charges, so check what services you receive and what repairs are required or planned to keep the whole property in good order. Check also how the service charge is apportioned between tenants of the building.
Consider the condition that the property is in as you take it over and what the lease says about the condition it has to be returned in. If you are required to return it in excellent condition this could leave you with a major repair bill for damage that was already existing. Your solicitor will be able to advise on how to reduce this liability and you may want to consult a buildings surveyor to understand the condition of the building and potential future repairs required.
Your solicitor will also check that any previous alterations which may have been carried out by the landlord or other tenants has the required planning and building regulations consents. Many leases require the occupying tenant to carry out remedial work which may be required by a local authority, even if they are not the person who carried out the original work.
It is also important to check that if you have a break clause in your lease, you can actually exercise your right to exit it without any onerous conditions being imposed. These could include for example having to pay a full quarter’s rent, to full compliance with all of the lease terms. A minor breach such as a failure to repair something could mean your request to the break is invalid, requiring you to continue paying the full rent and complying with all of the terms of the lease. Pay close attention to the notice period as if you miss it you will lose your right to exercise the break clause.
It is also important to check that you can make alterations to the property and what can and cannot be done. You may also be required to pay your landlord’s costs to agree to them. If you make changes it is likely your landlord will want to impose conditions such as removing the alterations and making good the property at the end of the lease. These are known as dilapidations and can be very costly.
Also check your insurance requirements with a specialist company or broker. If the property is damaged, you may be required to keep paying rent, even if you can’t use it. Your solicitor will be able to advise on how to protect against this scenario.
In the future you may want to move to a new premises and if you want to do this before the end of the lease, check if it can be transferred to someone else and under what terms. Very often the terms are such that you will still remain responsible under the lease if the new tenant defaults.
If you would like to remain in the property and require a new lease, do you have the right to one or is this excluded by the landlord’s statutory entitlement?
Entering into a commercial lease can be a long term and costly commitment, so minimise your risks and take advice to make sure you fully understand your position both now and in the future.