Thinking About A Business Lease? Things To Consider

If you are thinking about a business lease then it is essential to get the detail of the lease right for you and your business.

A commercial property lease is a legally binding contract between a landlord and tenant, and failure to comply with the terms of the lease from either party could result in Court action, which can be expensive and possibly detrimental to your business. This is why is it so important to make sure that you obtain independent legal advice from the outset so that you can make sure that the terms of the lease are suitable to your business.

Things To Consider In A Business Lease

Below we have outlined some important things you should consider when agreeing the terms of your business lease.

1. Repairs

Tenants’ repairing obligations in the lease should be appropriate to the length of the term and the condition of the property.

It is important to make sure that the lease does not require you to put the property into a better state of repair and condition than when you first take on the lease.

We strongly advise our clients to undertake a photographic schedule of condition to document the current condition of the property at the beginning of the lease with a view to limiting repairing liabilities when vacating the property at the end of the term. The photographic schedule of condition needs to be agreed between the landlord and the tenant, and you can either instruct a surveyor to carry out the schedule of condition or do it yourself. If you do consider doing it yourself make sure that you take plenty of photographs and make sure that you sign and date the photographic schedule of condition, and keep it safe with your lease documents.

Ensure the repairing and other obligations in the lease do not oblige you to put the premises into any better condition than at the beginning, as evidenced by the schedule of condition.

2. Rent Reviews

If the landlord and tenant have agreed that there will be a rent review part way through your lease, then it is important to make sure that the rent review clause is clear and precise, to avoid any costly disputes arising.

The basis of a rent review should normally be to the market rent, but it may be linked to Retail Price Index (RPI) or ‘turnover’. If there is an open market rental value provision included in the lease, it should disregard any improvements you make, or any value arising from your business.

You should also make sure that you have the ability to challenge the rent review by referring any disagreement to an independent expert or arbitrator to settle the rent.

It is important to note that time is not of the essence in relation to rent reviews. This means that if the rent review date has passed and the landlord has not done anything about it then he/she may have the right to review it at a later date and claim back any increased rent from the day the rent review should have taken place.

3. Alterations

When initially finding a suitable property for your business, it is advisable to check the property to see if you need to carry out any alterations to it in order to meet your business needs, and also consider the cost of these alterations. As a starting point, make sure that the business lease allows you to make non-structural internal alterations without the landlords consent, such as movable portioning walls.

With regards to any structural alterations, depending on the terms of your lease, consent from the landlord must be obtained first. The landlord’s consent should be given within a reasonable time period and the landlord should not be allowed to refuse without good reason.

Also, it is worth knowing if you will be required to remove any alterations at the end of the business lease. Landlords should not usually require tenants to remove permitted alterations, unless reasonable to do so. Landlords should be obliged to notify tenants of their requirements at least six months before the end of the business lease.

4. Lease Length, Break Clauses & Renewals

Within the terms of the business lease, make sure that the length of the lease is appropriate for your business needs and objectives.

It is worth considering if you need a ‘tenant only break right’ within the business lease, which will provide you with the opportunity to terminate the business lease on a pre-agreed date. This option to terminate the lease early will probably be based on the condition that you will have paid the principal rent up to date and will give up occupation of the property on the break date.

The Landlord and Tenant Act 1954 outlines your legal right to renew your business lease at the end of the term UNLESS you agree to ‘contract out’ of that  Act in the correct procedure.

How Can Nelsons Help?

Sarah BurnsThings To Consider In A Business Lease is a Solicitor in our expert Commercial Property team.

If you require any advice, please contact Sarah or another member of the team on 0800 024 1976 or via our online form.

Contact us today

We're here to help.

Call us on 0800 024 1976

Main Contact Form

Used on contact page

  • Email us