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What to Look for in a Commercial Lease- Factors to Consider when Leasing a Business Property

Whether you are considering leasing a business property for the first time, or you need to move into new premises, the task is not one to be taken lightly.  While it is tempting to take the easiest path to securing the premises you need, it is essential to slow down and proceed with caution.  

While many business leases go without a hitch, for some who have not taken the time to ensure their interests are protected from the outset, what can be a spring board to commercial success can turn into a slippery slope to acrimony and payment of damages.

08 April 2019
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What are your future business needs?

Businesses, like their clients, are becoming increasingly agile and flexible, meaning they tend to ‘pivot’ their business strategies more readily.  This means for an increasing number of enterprises, commercial premises that are suitable today, very well may not be in a year’s time.  It may not just be the size and purpose of the building which may be unsuitable should you change business tack, it might be the geographical location.  In addition, you may switch from a business to business to a business to consumer model, which may further alter your premises needs.
 

There are no assumptions when it comes to property

While you may have found the perfect premises, don’t assume the landlord has the necessary planning permission to enable a business of your type to operate.  They may need to apply for a change of use, as per the Town and Country Planning (Use Classes) Order 1987.  For example, if changing from a shop to a shop with a café, the landlord may first need to request prior approval from the local planning authority.  

Crucially, don’t make any assumptions regarding your obligations.  Just because you have one set of obligations with an existing commercial property, doesn’t mean this will apply with another.  This is not simply a question of repair; you need to consider fire, gas, and electrical safety.  If responsibility falls to the tenant for maintenance, this could also include managing asbestos.  The division of responsibilities when it comes to maintenance must be set out in crystal clear terms within the commercial lease agreement.  When it comes to this point in the agreement, do not be afraid to question everything; the last thing you want is for a problem to hit and for the bill to fall in your court – especially when this would be unfair and unreasonable.  

Do not rely on the word of a prospective landlord regarding the condition of the premises you are seeking to lease.  By engaging an experience surveyor who can assess all aspects of the building and the fittings included, to determine any repairs needed before you take up occupancy, you can avoid a potentially costly situation.  Landlords will typically hold responsibility for the structural elements of a building, but it is important to understand what is meant by ‘structural’.  

Understanding the importance of the ‘break clause’

Even with the best business planning in the world, there may be a multitude of reasons why a tenant (or landlord) may wish to bring an end to a commercial tenancy before the agreed date.  The biggest mistake to make it to simply accept the standard break clause included by your landlord.  It is important to understand that the break clause can be made mutually beneficial.  Under the Code for Leasing Business Premises in England and Wales 2007 (Lease Code 2007), "the only pre-conditions to tenants exercising any break clauses should be that they are up to date with the main rent, give up occupation and leave behind no continuing subleases.  Disputes about the state of the premises, or what has been left behind or removed, should be settled later (like with normal lease expiry)".  This means that with a break clause in place, the landlord should not be able to render it unusable because you have not fulfilled an obligation to make a repair.  Break clauses can be used to enable a lease to be terminated at any time (a rolling lease), after a specified date, or a fixed date.  In addition, the clause will contain detailed conditions, which may include a requirement for the tenant to have paid all rent owing, and that vacant possession must be provided.  One of these conditions may also include fulfilment of repair obligations – however, while the Lease Code 2007 recommends that such matters should not prohibit use of the break clause, it is essential to understand if such conditions are specifically included.  Seeking to remove these where desirable and possible may serve your future best interests in the event of a dispute relating to repairs.  It is also important to consider when the specified conditions must be met by – i.e. on the date of service or on the break date itself.

If you are considering entering into a new lease, or renewing or terminating an existing one, seek professional advice before you proceed.  By getting the details right now, you will protect your business interests for a long time into the future.

Guillaumes LLP are commercial lease solicitors that have your interests at heart. Let us know how we can help, especially if you find yourself in the midst of a commercial property dispute.