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Choosing the right property for your business is an important decision, and there are many factors to consider.
Apart from the obvious considerations, such as whether the property is in the right location and whether the rent is affordable for your business, there are other points that should be taken into account.
Our Commercial Property Lawyers set out some top tips to bear in mind before agreeing to any heads of terms for commercial leases.
If you’ve not already instructed an agent to help you look for a property to rent, you might want to instruct one to help you negotiate the heads of terms with the landlord when you’ve found the property you want to go with.
Agents can advise you on the market rent for the property and can assist in negotiating the other terms to be included in the heads of terms, such as a rent-free period and any break clauses.
Landlords often instruct their agents to negotiate the heads of terms, so tenants need their own advice.
This can be something tenants don’t necessarily think about when leasing a property, as surveys are more commonly associated with purchasing a property.
However, it’s still important to do one when renting a property, as the tenant will be responsible for its repair.
This is especially important when it’s a full repairing and insuring (FRI) lease of the whole of a building or unit, so not just the internal parts of a unit within a larger building.
You will want to check that the property has no existing defects and whether there are any large items of repair that are likely to come up during your lease.
The landlord would not cover the cost of these, and the tenant would be responsible for them.
It’s not just the rent you must pay during the lease.
Nearly all commercial tenants will have to pay insurance rent to the landlord, which is the cost of the landlord’s building insurance (or a fair proportion of the insurance for the building if the property is part of a larger building).
You might want to ask the landlord what the existing insurance rent is (this will likely increase during the term as insurance premiums increase over time).
If the property is only part of a building or is on an estate, there will likely be a service charge (or estate charge) for the landlord’s maintenance of the communal and structural parts of the building/ estate.
The normal position is that an estimate of the service charge (based on the landlord’s service charge budget) is paid in 4 instalments throughout the year, and the landlord carries out a reconciliation at the end of the service charge year, with any over or underpayment due to or from the tenant.
You will want to ask what the estimated service charge for the property is for the current year and what it has been for previous years so you can check if this is affordable for your business.
You may also want to agree to a service charge cap with the landlord, which will limit what the landlord can charge you in any given year.
The landlord may ask you to provide a rent deposit as security for your obligations in the lease.
This is particularly common when the tenant is a new business or a limited company with no assets.
The deposit is usually returned at the end of the lease (or when you transfer the lease to someone else), minus any deductions the landlord is permitted to make.
Sometimes, the landlord will agree to return the deposit at a certain point during the lease, provided the tenant has been paying the rent on time or when the tenant’s profits are over a certain amount.
You must ensure that your intended use of the property won’t breach planning.
Your solicitor will normally check this as part of the due diligence on the property, but it is worth enquiring with the landlord about this before you agree on the heads of terms.
You may also want to check whether there are any planning restrictions, such as restrictions on opening times.
You might intend to work at the property before you start using it.
If this is the case, you will usually need the landlord’s formal consent, documented in a “licence to alter”.
You will have to provide a specification of works and plans showing the alterations for the landlord’s approval, so you will need to think about getting these prepared.
If you need professional legal advice regarding leasing a commercial property, get in touch with our Commercial Property Lawyers on:
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Emily has 7 years of experience acting as a Commercial Property solicitor. Emily has specialist expertise in real estate commercial matters, including landlord and tenant work, acquisitions and disposals, property development and finance.
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