Commercial Property Leases: Checklist
Entering into a commercial lease is a big commitment, and there are many factors to consider before signing on the dotted line. Jenny Colvin, Commercial Property Associate, explains some of the key issues:
- Term: A longer term gives you security but ties you to a lease that is difficult or even impossible to get out of.
- Breaks: An option to terminate early can give you a ‘get out of jail free’ card.
- Property: Is it a lease of a whole building, or just part of it? Repair obligations for the exterior and structure can be very costly and should be avoided if possible. There may be common facilities that are available for your use. Do you need parking spaces, access to toilets and kitchen areas, bins etc.? If so, this should be in the lease.
- Security of tenure: This is the right to remain in the property and request a new lease when the term ends. Many commercial landlords will exclude this right. If you want long term security ask for this upfront.
- Rent reviews: Most longer leases will allow the landlord to increase the rent at regular intervals. Rents go up, never down.
- Repair: Property is ‘let as seen’ so before you commit, switch on the lights, test the boiler, check the drains, inspect the roof etc. – take a surveyor with you if you wish – but ensure you know what you are getting. Ask the landlord to fix any issues before you sign. If they won’t, consider whether it is worth the risk. If the property is not in good repair, ask for the repairing obligation to be limited to the current condition, with photographs as evidence.
- Alterations and signs: Fit out works and signage generally need consent from your landlord, and this is easier and cheaper to obtain when signing the lease. Structural alterations are usually prohibited and anything permitted will need to be reinstated to the original condition when you leave. You may also need planning permission and/or Building Regulations approval.
- Insurance: Usually the landlord insures and recovers the cost from the tenant. How much is your share?
- Service charge: Does the landlord make a service charge for repairing the building or estate, or common areas? Get a budget for the annual cost and whether any substantial works are planned.
- VAT: Does your landlord charge VAT on the rent? If so, can you recover it as input tax?
- Assignment or sub-letting: You may be able to transfer (assign) your lease with the landlord’s consent, or underlet the property. You are unlikely to be permitted to share the property with anyone and you may be required to guarantee any incoming tenant’s liabilities.
- Use: What the lease permits is not the same as the permitted planning use. You have to work within both. The latter is your responsibility to check and, if necessary, obtain. You will probably need landlord’s consent for any change of use application.
- Stamp Duty Land Tax: There is often an SDLT liability when taking a lease, even on a short term if the rent is high enough.
- Security: If you are a small company or have no trading history the landlord may ask for a rent deposit. 3 months is reasonably standard. The landlord may also ask for a personal guarantee from the directors.
If you have any queries about entering into a new lease, or acquiring an existing lease of commercial premises, please contact Jenny Colvin in our commercial property team on 02392 776558.
This is for information purposes only and is no substitute for, and should not be interpreted as, legal advice.