Commercial Property

Commercial Leases 101

In many cases when buying a business, you will want the operation to carry on in its current premises to maintain the current customer base. However, it pays to be aware that if you take over an existing lease, you are unlikely to be able to negotiate the lease’s terms. If you choose to take on a new lease, you will need an experienced solicitor to negotiate the best possible terms for you.

What does lease assignment mean

  • Firstly, you need to understand the terms of the lease and be assured that the outgoing tenant has the right to assign the lease.
  • The terms of the lease agreement may provide that the landlord has the right to assess if you are a fit tenant to take on the lease.
  • The terms of the lease should be comprehensive, including boundaries of the property and all the conditions of use. You should have a signed undertaking from the landlord that the lease meets the Lease Code.
  • If there is a clause in the lease that the premises must be returned to their original condition at the end of the lease, this will be the condition at the beginning of the lease, not when it was assigned to you. You may need to investigate the original condition the premises were in.
  • It is standard for the incoming tenant to pay the legal costs of the landlord and assigning tenant as well as their own.

Regardless of whether you take on a new or existing lease, you need to be aware of your rights and obligations relating to fixtures and fittings, maintenance, repairs, break clauses, rent review, insurance, and dispute resolution. Signing a lease is a significant investment for your business - if you are aware of these matters from the outset and your lease terms are favourable to you, this will allow you to concentrate on growing your business.

Fixtures and Fittings

  • Your rights regarding fixtures and fittings should be clearly set out in the lease. It would be unfortunate, for example, to sign a lease for premises to be used as a shop and then find you are not allowed to install new joinery or put up signs.
  • Your intended use of the property will need to comply with your landlord’s planning consent.
  • The Construction (Design and Management) Regulations 2007 is the statutory scheme you must comply with when making alterations.

Maintenance and Repairs

  • It is important that the lease sets out all the obligations relating to maintenance and repairs – both yours and the landlord’s.
  • Terms of the lease relating to the condition the premises are to be in when the lease ends are important.
  • If there is any damage to the property, ensure there is documentation of it and acknowledgment by the landlord. The damage might otherwise be attributed to you.
  • It is likely that the lease agreement will require that you return the property to its original condition when the lease ends.

Break Clauses

  • It is common for commercial leases to contain break clauses. A break clause will allow you to end your lease early, provided all your rent payments are up to date.
  • This can be useful if you reach a point where you want to change premises, or in the unfortunate event that your business is struggling.
  • Bear in mind when you end your lease (either through use of a break clause or because the lease expires) of the need to fulfil your repair obligations.
  • The lease should state the amount of notice you need to give the landlord if you want to exercise the break clause.
  • You may forfeit the right to use the break clause if you do not meet your obligations under the lease.

Rent Review

  • Having a rent review clause in a lease is also common. When your lease terms are being negotiated, you should only agree to a rent review clause that is based on an independent valuation source. If the rent review is based on an open market valuation, it may not consider the value you have added to the premises.
  • It is wise to serve notice on the landlord that a rent review is due, because you may be liable to pay interest on increased rent after the fixed date when rent is to be reviewed, even if the review does not happen until later.

Insurance

  • If the terms of the lease require you to pay the landlord’s insurance premiums, make sure the paperwork checks out, you know how much you will be paying, whether the premiums may increase and what the insurance policy will provide in the event of damage (repair, replacement, etc.).
  • Your activities in the property may affect the insurance cover – ensure the landlord is aware of the nature of your business so that the insurance policy reflects this.
  • You will need to arrange your own contents and liability insurance appropriate to your course of business.

To find a solicitor experienced in commercial leases, search through Solicitors Guru today.


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