Commercial Property: Considering entering into a commercial lease?

Starting a new business venture, or relocating an existing project can be both exciting and stressful in equal measures.

Else Solicitors work with hundreds of business leaders who are in exactly this position. Our commercial property solicitors have come to recognise common pitfalls that many tenants fall into.

Instead of rushing in, there are a number of factors you need to consider before agreeing terms with a landlord for your new property which we have (helpfully) summarised for you;

  1. The best course of action is to instruct a solicitor before you agree “Heads of Terms”. This way you can get advice on the terms before they are agreed. It is simpler to change the terms at the beginning rather than after everything has been drafted and you are committed. Get advice sooner and save time, costs and delays.
  2. Length of lease – The length of the term of the lease needs careful consideration. This is essentially the length of time you will be tied to that particular building! A lease is a binding contract, for a set period over which you agree to pay an annual rent. Whilst it may sound obvious it is crucial to consider and understand how expensive a Lease is – this may sound strange, but… a lease is, in reality a liability.
  3. Rent Review – Most leases over 6 years in length, have a rent review clause, a clause that allows the Landlord to force an increase in the rent at a fixed point. The frequency and amount that the rent can be increased by will fluctuate depending upon the provisions of the Lease.
  4. ‘Rent free periods’ – A rent free period or a period of reduced rent are usually discussed when the heads of terms are negotiated. Agreement of a rent-free period should be treated with a degree of caution, as potentially the tenant may end up paying an inflated annual rent on the remaining term.
  5. Need a break? – A break clause allows the tenant (or sometimes the Landlord) to end the lease before the end of the lease term. If you negotiate a break clause it is important to ensure that you can comply with its conditions, otherwise it is worthless.
  6. SDLT – Stamp Duty Land Tax (SDLT) is tax paid to HM Revenue & Customs on a purchase or lease of Property in England, Wales or Northern Ireland.
  7. Reinstatement and Repair Obligations – It should be noted that whatever the type of property you rent, whether it be an internal lease only or a lease of a whole building, at the end of the term, unless negotiated otherwise, the tenant is required to put the property into a full state of repair and condition. This can be very costly.
  8. Security of Tenure – Simply put, Security of Tenure is a statutory right to remain in the Property at the end of the term. If the lease benefits from this right, the tenant will not need to vacate at the end of the lease, they can “hold over” until the Landlord serves notice on them to leave, this notice being for a minimum period and provided the tenant has complied with the lease, can only be exercised in very limited circumstance. The tenant can demand a new lease on broadly similar terms to the existing lease.

Agreeing the terms of the lease is not a simple task as there are so many factors to consider. Follow our commercial property expert’s monthly articles for more information and solutions to each of the common property related issues. We’ll kick things off at the start of December with a ‘Length of lease’ article.

If you would like to discuss your commercial property matters, please contact neil.etherington@elselaw.co.uk or call him on 01283 526 200.

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