Tips for tenants when negotiating a commercial lease

The terms of your lease can have far-reaching consequences for your business. Seeking sound legal advice from your solicitor at the outset will go a long way to making sure that the terms and conditions of your lease work for all parties concerned.

Supply and demand in the commercial property market will play a big role in your negotiations. Still, there are several other areas to consider that will help you secure the best possible lease terms.

The length of the lease

Lease terms can differ from one or two years up to 20 or even 25 years – it very much depends on your business and whether having the security of a consistent location (for example, a restaurant or shop in a town centre location) in the longer term is important. Or perhaps, you may need premises in the short term with the plan to expand and move somewhere larger after a year or two.

Ideally, you’ll want to be protected by the Landlord and Tenant Act (1954), which will give tenants the legal right to renew the lease once the old one has expired. Security of tenure and the Landlord and Tenant Act will be important as your business grows, especially if you decide you want to remain in the premises. A good commercial property solicitor will advise on the best course of action.

Break clause

Things don’t often turn out exactly as you plan, so it’s important that you negotiate flexibility. A break clause in the lease will allow you, the tenant, to end the lease before the full term. You don’t want to end up with premises that aren’t fit for purpose for your business or that becomes an ongoing financial burden.

Rent

Landlords will want to maximise their rental income, but rent-free periods can be common – for example, an initial period at the outset to get you to sign on the dotted line. The property might also need work to be carried before your business can move in or operate effectively, so try and secure a rent-free period or rent reduction to compensate. 

Any saving can have a big effect on your cash flow, especially if you’re a fledgling business.

You will also need to work with your solicitor to negotiate the best deal possible when it comes to rent reviews.

Stamp Duty Land Tax

You must pay Stamp Duty on a lease – with the amount varying on the length of lease and the amount of rent you pay. A lease over seven years must be registered at the Land Registry. Failure to do so will mean you pay a fine to HMRC for non-payment of the SDLT.

Repairing obligation

On a commercial lease, the repairing obligation is defined by the wording in the lease and not the condition you put the property in.

Being liable for a property’s maintenance and repairs can be a real burden. You don’t want to find yourself in the situation of being responsible for major works or repairs to the building disproportionate to the length of the lease. Negotiate obligations, along with your solicitor, that are appropriate to the lease duration and the condition of the premises.

Alterations to the premises

If you want to make minor changes to the premises, agree that these can be undertaken without the landlord’s consent. More significant or structural changes will require written permission from the property owner but make sure this can be obtained without delay.

Sub-letting

At the beginning of the lease or whilst your business grows, you may want or need to consider sub-letting some of the premises to help with your finances. Legally this is known as alienation. 

Landlords will want reassurance that any sub-tenant will be able to pay rent and meet the tenant’s obligations within the lease or that he or she is not left with a third party occupying part of the building once the lease term ends.

When trying to secure commercial premises, remember that all the terms of the lease can be negotiated. Work closely with and be guided by an experienced commercial property lawyer to secure yourself the best deal. It is too late to renegotiate terms once you’ve signed on the dotted line.

Contact our commercial property solicitors

Our team of commercial property solicitors in Brighton, Eastbourne, London, Hastings and Uckfield can help you understand your commercial lease options.