10 things to consider before signing a commercial lease

Our Commercial Property team have listed and explained the top 10 things to know before you sign a commercial property lease.

1. Rental- you will need to confirm how much the Tenant will need to pay for rent and whether this will change throughout the term of the lease. You also need to ascertain whether VAT is payable on the rent. This will set out some of the monthly outgoings and will allow you to budget.
2. Any other outgoings- It is important to consider whether or not the Tenant will be paying any extra fees such as service charges. A service charge is often added when a property that is leased forms part of an estate owned by the Landlord. The service charge would cover items such as the cost of maintaining any private road and common parts.
3. Length of term- you will want to know how long the lease is for i.e. 10 years; this is an essential part of negotiating the lease. Please note a lease of 7 years or more is registrable of the land registry.
4. Assignment and underletting provisions- The lease will contain provisions as to whether or not the Tenant can assign (transfer) the lease to another party or underlet the property. If the lease is for a long term, it is quite normal for these provisions to be included. However, you will likely be responsible for the Landlord’s fees upon assignment/ underletting and the Landlord will need to provide consent in the form of a Licence to Assign.
5. Repair- the Tenant will need to know whether they are responsible for repairs at the property and if so what are they responsible for. If they are leasing part of a unit, it is likely they will only be responsible for internal repairs. However, this must always be checked.
6. Any break clause- some leases have the chance to ‘break’ during the term. This would allow either the Tenant or the Landlord to end the lease prematurely. Each break clause is different and would need to be reviewed to ascertain the rights of each party.
7. Security of Tenure- some leases provide what is called ‘security of tenure’ this means at the end of the term the tenant has an automatic right to renew the lease. There would be very few options for the Landlord to refuse a renewal. However, if this is not included in the lease the Landlord does not need to offer the Tenant a renewal lease.
8. Incentives- Often in order to take on a lease, the Landlord provide certain incentives to entice you to take the lease. These incentives are often rent-free periods. This would mean that Tenants would not pay rent for the first six months for example. Again, this is a negotiation and should be confirmed at the outset.
9. Alterations- the lease will often contain provisions regarding alterations. Commonly, leases provide that Tenants can make internal, non-structural alterations but with the Landlord’s consent. However, the Landlord may prohibit certain types of alterations, such as external structural alterations, and this would be set out in the lease.
10. Seek legal advice- we would always recommend that you seek legal advice prior to signing a lease. It is important that the lease benefits you and you are not tied into any onerous clauses.

Our Commercial Property Team can be contacted by calling 01302 341414 or by filling out our online enquiry form.

We have more articles on our website relating to Commercial Property, here are three that you may find helpful:

• The difference between residential and commercial property 
• Is VAT payable on Commercial Property? 
• What is an FRI lease?