Commercial Leases
Commercial Leases
You may choose to rent commercial property for your business rather than buying it outright. This means you’ll need to make a commercial lease agreement. A commercial lease is anagreement you make with a landlord to use their commercial property for your business in return for rent payments. You become their tenant, and you’ll both have obligations to each other.
Commercial leases are used specifically for renting out commercial property. This could include office buildings, restaurants, retail spaces, and warehouses.
A commercial lease agreement is a contract that sets out the terms of your agreement with your landlord.
The length of the term
You will need to agree how long your tenancy agreement will last. Lease agreements can be short-term or long-term depending on the needs of your business.
You may agree to a break clause with your landlord if either of you want to end the lease early and you could set out how you would renew the lease when it expires.
Rent payments
Rent is usually paid quarterly or monthly in advance, sometimes with penalties for late payments. Leases often specify rent reviews every 3–5 years, and sometimes rents may only increase, not decrease. Sometimes landlords offer rent-free periods to incentivise tenants to enter leases, or to compensate for necessary repairs. Rent would depend on factors to do with the property’s size, location, and condition, as well as the state of the property market in general.
Maintenance obligations and service charges
The landlord and tenant are both responsible for maintaining the property. Typically, the tenant will be responsible for minor improvements, like paint and furniture and the landlord will be responsible for structural issues and ensuring that the property meets health and safety standards.
The landlord may also be responsible for providing cleaning and heating for the building. The tenant will typically pay a service charge to contribute towards these costs.
Insurance
The lease should specify that who is responsible for paying buildings insurance premiums. If the landlord arranges the insurance, the tenant will usually pay part of the insurance premium as part of the service charges.
Agreeing to a commercial lease involves a negotiation between the landlord and the tenant. We can help you to get the best deal possible.
When the tenant is satisfied with the terms of the agreement, the parties will sign a legally binding contract, and the tenant will pay any upfront costs. If you are a tenant, before you make an offer on a commercial property, you need to make sure that it is right for you.
The condition of the property
It is important for the incoming tenant to check the condition of the property before you start leasing it. This is so you cannot be blamed for any issues later down the line if they were to occur.
A building surveyor’s report will highlight any issues. You can use the findings to get any problems fixed before you make an offer.
Does it suit your business?
Commercial properties have different purposes they can be used for. This is called a ‘planning use class’. For example, some properties can be used as retail space, while others can be used as offices. If you are incoming tenant, you need to make sure that you are allowed to operate your business from the property. It is possible to change what a property can be used for, but you may need to get planning permission.
It is also important to consider whether the property will help your business to be successful. For example, make sure that you are happy with the property’s size and location.
How long your lease should be
A short-term lease may give more flexibility, but a longer-term lease may give more stability to business. What is right for the business depends on needs of the specific business.
Business rates
Commercial property attracts business rates which are paid to the local authority as a contribution towards services in the area. The amount of business rates will vary depending on the open market rental value. Before signing the lease agreement, the tenant must be sure that the business can afford to pay the business rates.
The incoming tenant will typically pay for drawing up the commercial lease agreement, legal fees, and Stamp Duty Land Tax.
When a commercial lease is due to expire, the tenant can choose to either leave or renew the lease. If the tenant wish to renew, this can usually be arranged with the landlord.
Alternatively, if the tenant has agreed to a break clause with the landlord, either of them can use it to end the tenancy before the expiry date without violating the terms of the lease agreement.
Drafting a commercial lease can be a relatively complex matter, and as a landlord of a commercial property it is important to understand the implications and obligations as a landlord.
Terms and conditions of a commercial lease documents needs to be evaluated carefully to ensure that they match the requirements of your business. Mistakes, errors, or misstatements in a lease document could potentially become a challenge for the survival of your business going forward. We can help you have the right lease agreement in place.
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