When a business takes on a lease of new premises, there’s much to consider. It is a common misconception, particularly held by first-time tenants, that a commercial property lease is little different to a tenancy of a flat or a house, e.g. you sign the lease, pay your deposit, and pick up the keys.
The truth is, taking responsibility for business premises brings with it a number of potential costs and liabilities.
Below we have highlighted a few things to look out for when taking on a commercial property lease:
Finding the right property, and paying the right price
Whether you are starting a new business, or looking to expand, you need to find the right real estate to suit your business needs. Before doing this you will need to consider the space you need, find the right location, and ensure that the property is in decent repair.
Unlike when taking on a residential lease, business tenants are usually responsible, under their lease, for keeping the property in good repair. If the property is not in good shape to begin with, this may actually mean assuming responsibility to improve it, and that can be very costly. If you have any concerns about the condition of premises, you should instruct a survey, and also take legal advice on how to mitigate that liability.
Also, be aware that landlords often, particularly when letting to a small or new business, request a substantial rent deposit or a personal guarantee. Be clear early on what the landlord expects before you get too far down the line.
Finally, you do need to make sure you are getting a fair deal. Tenants should always take advice from a commercial agent, who can advise on what rent level is fair for the area, how long a lease you should accept, and whether you should press for the option to break the lease early if things don’t work out.
Coming to terms…
Once you’ve found a property that suits your needs, you will probably be presented with ‘heads of terms’ to approve. This is a statement of the main agreed points, such as the term (i. e. lease length), rent level and provision for the rent to be reviewed, and any termination rights.
To save time later, you should make sure that this document is sufficiently clear and detailed so that everything you’re expecting is down in black and white. If you need to be in within a certain time, if you need the landlord to agree to a certain use of the premises, or if you want to be able to make any alterations, this is the time to make that clear.
The law of the land
When the main terms are all agreed, this is where we come in!
Our main job is to advise you on the contents of the lease, and make sure that any changes that need to be made are made. Sadly, there is no such thing as a ‘standard lease’. Leases vary greatly in their content according to the type of property, the intended use and the parties involved, and it’s important to get it right.
At this point, we will flag up any costs you may not have thought of, including:
- Insurance – unlike in the case of a residential lease, the cost of insurance is typically passed on to a tenant on top of the rent, it is not included.
- VAT – most people don’t realise that VAT can, and often is, charged on rent in the case of business premises.
- Stamp duty land tax – again a surprise to many new tenants: depending on the lease term and rent, stamp duty land tax can be payable when taking a lease.
- Service charges – if you lease a part of a building, you’ll probably be asked to contribute to the upkeep of any commonly-used areas. Again, this will probably be an extra cost on top of the rent.
- Consents – if you want to assign or sublet, or make alterations, you’ll usually need your landlord’s consent, and at that point will have to pay their lawyers’ and agents’ costs for dealing with the matter.
- Dilapidations – if the property is not in good repair when handed back, you could face a hefty bill for putting it right.
As well as dealing with the documents, we’ll also check out the property from a legal perspective. We’ll check the landlord’s title holds no nasty surprises, we’ll carry out searches to check for matters, such as planning consents, environmental risks and water connections, and we’ll make enquiries of the landlord to check for any issues they’re aware of that might affect your occupancy.
Letting go!
There’s a lot to think about and a lot to consider, but with good advice, at least there should be no nasty surprises. If you’re considering taking a lease, give our commercial property team a call, and we’ll give you the advice you need.
How Nelsons can help
If you require any advice in relation to a commercial property lease or any other matter, please contact our Commercial Property team on 0800 024 1976 or contact us via the online form.