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Commercial Property Leases: Checklist

Oct 25, 2017

Taking a lease of commercial premises is usually a big commitment. Issues to consider include:

  1. Term: A longer term gives you security but ties you to a lease that is difficult or even impossible to get out of.
  2. Breaks: An option to terminate early gives you a ‘get out of jail free’ card.
  3. What are you leasing?: Is it a lease of a whole building, or just part of it? In either case 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.
  4. Security of tenure: This is the right to have a new lease when the term ends. Many commercial landlords will wish to exclude this right. If you are expecting long term occupation ask for security to be included.
  5. Rent reviews: Most longer leases will allow the landlord to increase the rent at regular intervals. Rents go up, never down.
  6. Repair: Property is ‘let as seen’ so before you commit, go and switch on the lights, test the boiler, check the water is running, check the drains, inspect the roof – take a surveyor with you if you wish – but be sure you know what you are getting. If you’re not happy, ask the landlord to fix it before you sign. If he won’t, you may need to walk away. If the property is not in perfect repair ask for a repair obligation limited to current condition and agree a schedule of condition, with photographs to evidence it.
  7. Alterations and signs: Fit out and other works and signage generally need consent from your landlord, and this is easier and cheaper to obtain before signing the lease. Structural alterations are usually prohibited and whatever is permitted will need to be taken out and the premises put back into original condition when you leave. You may also need planning permission and/or Building Regulations approval.
  8. Insurance: Usually the landlord insures and recovers the cost from the tenant. How much does it cost?
  9. Service charge: Does the landlord make a service charge for repairing the building or estate, or common areas? Get an idea up front of the annual cost and whether any substantial works are planned.
  10. VAT: Does your landlord charge VAT on the rent? If so, will you be able to recover it as input tax?
  11. Assignment or sub-letting:  You should be able to transfer (assign) your entire lease with the landlord’s consent, or underlet it. You are unlikely to be permitted to share the property and you may be required to guarantee the incoming tenant’s liabilities.
  12. 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.
  13. SDLT: There is often an SDLT liability when taking a lease, even on a short term if the rent is high enough.
  14. 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 – resist anything higher. 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.

ENDS

This is for information purposes only and is no substitute for, and should not be interpreted as, legal advice.