What to consider when you are taking on a new commercial lease
If you are thinking about entering into a new lease of commercial premises – whether to expand your existing business or for a new venture, you will need to agree on the main terms of the lease.
At first glance, these can appear simple – but there are a number of complications which you should consider.
The rent will be the annual rent for the property, paid to the Landlord.
However, you should think about whether this will be the only rent you will have to pay. If your premises are in a shared building, your rent may also include:
– a service charge (for the management and maintenance of any common parts);
– a proportion of the costs of insuring the building.
How much will these additional charges be?
If the lease is for a number of years, it is likely that the Landlord will want to change the rent during that time – to reflect any changes in the market. This is likely to be assessed as an ‘open market rent’ – i.e. the rent at which your landlord could let the property on the open market at the date of review.
Your lease will include detailed provisions on how any new rent will be calculated.
How long will the lease be for?
If the term is for 7 years or more, you are legally obliged to register the lease at the Land Registry (Pictons Solicitors will do this for you).
Do you want the flexibility of being able to walk away from the lease at some point during the term? If so, then you can consider a break clause – this will allow you to ‘break’ the lease by serving notice to end the lease at a specified point during the term. The Landlord may also want a break clause to allow them to end the lease during the term – would you be willing to agree to this?
You should also be aware that negotiating the flexibility of a break clause may affect the rent.
Security of Tenure
The Landlord and Tenant Act 1954 protects business leases by giving ‘security of tenure’. This means that (unless your lease is specifically opted out of this protection), when your lease comes to an end you should have the option to renew it on approximately the same terms as before. Pictons Solicitors are experienced in dealing with lease renewals.
Full Repairing Lease
A full repairing lease means that you will be fully responsible for the repair of the property. You should be aware that an obligation to keep the property in repair includes an obligation to put the property in repair at the start of the lease.
We would strongly recommend obtaining a full survey of the property to satisfy yourself that the property and the structure is in good condition and that there are no costly hidden repairing costs.
Consider whether a schedule of condition is necessary. This is a document prepared by a surveyor which sets out the physical condition of the property as at the date of the lease. This will likely be of value in long leases, especially where the property is in disrepair or the rent is high – it means that you will only have to keep the property in the condition it was in when you took the lease.
At the end of the lease, you will be responsible for repairing the property to the condition it was in at the date of the lease – this is known as dilapidations. For more information on this, please contact the commercial property team at Pictons Solicitors
Assignment, underletting and sharing occupation
– Assignment is simply the sale of your interest in the lease to another person or business.
– Underletting is your ability to lease the premises to another person or business – your lease would remain in place and you would remain as tenant of the premises, but would also be landlord to an undertenant with an underlease.
– Sharing occupation is permitting another person or business to occupy the premises with you, without a formal underlease in place.
Consider whether you would need the ability to do any of these things to effectively run your business. Your lease will contain detailed provisions confirming in what circumstances these are permitted.
Once you have negotiated these general terms, you will need to instruct solicitors to finalise the details of your lease and advise you of the terms and risks. Pictons Solicitors offer commercial and cost effective advice on all leases, and have a wide range of experience acting for all types of clients.
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