For any business – but particularly startups and new enterprises – signing a commercial lease is one of the biggest commitments you will make. The lease rent will constitute one of the business’ main outgoings and if the building is inadequate, or the landlord unwilling to meeting their obligations, this can have a big effect on the business. So, what should you think about before you sign on the dotted line?
Choose the property carefully
There are three main questions to consider when looking for that perfect commercial property: location, use and planning permission. Once you’ve signed the lease you can’t change the location of your business without incurring cost so be sure that it is suited, whether you need the passing trade for a retail site or staff accessibility for an office. Make sure the landlord is happy with the way your business will be using the buildings and check the Local Authority businesses uses. These are usually: A General retail, A2 Financial and Professional A3 Food and Drink. The wrong use means applying for planning permission to get it changed.
Work through the costs involved
Beginning a commercial lease can be an expensive business. In addition to the rent and business rates you will also need to think about other costs, such as insurance and legal and surveyor fees. Stamp Duty Land Tax is now payable by the tenant the amount of which is determined by the length of the term and the amount of the rent. There is a fee payable to register a lease with H. M. Land Registry if it has more than 7 years on it. Finally, remember that you may have to pay a service charge to the landlord for the maintenance of common areas and security.
Make sure you’re happy with the key provisions
Due to the crucial nature of the commercial lease document, and that fact that you may need to negotiate some clauses, it’s always a good idea to take legal advice before signing. The key provisions in any commercial lease are those that affect occupation and costs.
The term of the lease. This is the length of time you can occupy the building. There is no standard term for a commercial lease but market lengths tend to be around five years for an office and 10 for a retail space. If you want the flexibility to leave early then make sure you insert a break clause – however, bear in mind this could increase the rent.
The cost of the rent. How much is the rent, when is it due and when – and how – is it likely to increase? Most leases for more than five years will contain a rent review clause that potentially allows the landlord to increase the rent in line with the market rent. If you have a long rent free period at the start of a lease, make sure you know how much you will pay once this ends. Bear in mind that many landlords offer a cheap looking rent and supplement this by large service charges.
Making changes to the building. Most leases will enable a tenant to carry out alternations with the consent of the landlord. However, make sure the lease allows this if you think it might be important.
Repairs. Commercial leases are often ‘full repairing and insuring leases.’ This is very beneficial to the landlord and means that the cost of repairs, and the responsibility for ensuring they happen, lies with the tenant which is onerous. The landlord will insure the property and re-charge the premium back to the tenant. However there will be an obligation on you to take out third party insurance in case someone has an accident on the property and to insure your own equipment.
