Taking on a lease of commercial property is likely to be integral to someone’s business but it can also be one of its biggest liabilities. Below are some top tips when negotiating terms with a landlord.
Understandably, the level of rent that the tenant pays each month or quarter will be one of its main concerns. Whilst it is important for a tenant to ensure that it is paying a fair market rent (possibly by taking advice from a surveyor), it is necessary for a tenant to be clear on the other outgoings and liabilities that a landlord will expect it to cover under the terms of the lease. Also, it is always worth trying to negotiate rent free periods – especially if you need time to carry out fit-out works to the property before you can actually use it.
The repairing obligation could be the tenant’s main liability under the lease so it is important to get it right. A Schedule of Condition is a fundamental tool to protect a tenant – to ensure that the condition of the property is documented from day one. Otherwise, the tenant could find itself liable for disrepair caused by previous tenants or caused by the age/general poor condition of the property. The Schedule of Condition should contain a narrative and photographic evidence – which will need to be agreed between the landlord and tenant prior to the start of the lease.
Budgeting for future liabilities will be one of the tenant’s priorities to ensure the success of its business. An unexpected invoice landing on the tenant’s desk is never good news and service charge liability is often an unknown quantity. The landlord will not have exact figures from one year to the next and estimates will be given at the beginning of a service charge year. It is advisable for a tenant to protect itself with a service charge cap – to ensure that in any one year, the tenant will not be liable for more than the agreed amount. That agreed cap should also cover a tenant’s obligation to contribute towards any sinking fund.
Signing up to a 10 year lease or even a 5 year lease could be a daunting prospect – especially in uncertain times. A tenant might not want to sign up to a long-term commitment until expectations are met in terms of success and on the other hand, the success of the tenant’s business might mean that it outgrows the property in a relatively short period of time. Having the right to break the lease at certain points (i.e. every three or five years) will be useful to keep the tenant’s options open. Legal advice on this is fundamental – because such rights are notoriously difficult to exercise.
A property (i.e. the location of the tenant’s business) could be vital to goodwill. As a business tenant, the law does give it lease renewal rights at the end of the term (subject to conditions and exemptions) but the landlord can require the tenant to ‘contract out’ of this protection. If at all possible and to keep options open, it is always worth trying to safeguard such rights.
If you need any advice on tenants, please contact a member of our commercial property law team in confidence here or on 02920 829 100 for a free initial call to see how they can help.
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