No matter what the relative bargaining powers of landlord and tenant are, there is usually room for some negotiation of the terms of a commercial lease. So, if there is anything in the document that you’re not happy with it’s always worth suggesting alternative proposals. In particular, look out for provisions that are not ‘market’ i.e. that you wouldn’t find in a standard commercial lease, and try to identify anything that you think is missing. This is where legal advisors come in particularly useful. Commercial specialists will be able to advise you on what market provisions are and what is worth negotiating.
Before you begin
Make sure that your lease is within the protection of the Landlord and Tenant Act 1954. This will give you a right to apply for a new lease in future and limits the grounds on which the landlord can object to this. It’s also important to decide on how the lease is going to be held, whether by you individually or in a limited company. It may be beneficial to use a limited company to protect you personally but if the company is not an established one the landlord will almost certainly object and ask you to stand as guarantor. It is worth negotiating this as it may be possible to limit the time that you stand as a personal guarantor.
Searches are important
Carrying out searches will uncover planning permission breaches, as well as whether there is anything related to the Local Authority that could affect you in the coming months. If the property has obligations, or there are issues with planning permission, this should be reflected in a drop in the price of the rent. Remember that a lease that allows for only a single use will restrict your business from expanding so you may want to negotiate wider use.
What can you ask for?
There are a couple of standard requests that are always worth asking for. Whether you are successful will depend on factors such as the strength of your bargaining position, the market in general and how much the landlord wants to rent to you. For example, you could ask for a rent free period. Landlords won’t want to pay business rates on empty properties and so would rather offer a rent free period than have no tenants. Another important common request is for a break clause if things aren’t working out for you – this will give you an opportunity to bring the lease to an end earlier than the length of its term by giving the landlord notice. Whether the landlord accepts this will depend on the factors mentioned above – the landlord may require a higher rent for this kind of flexibility.
What should you watch out for?
Some landlords have been wording leases so that tenants pick up all the legal fees. This is not a standard clause and not something tenants should accept. Most leases will contain a rent review clause that will allow a landlord to review – and increase – the rent. It’s often worth negotiating wording that allows the tenant to challenge this too on certain grounds.
One of the most dangerous areas for tenants is that of repairs. The best case scenario is a lease that requires the tenant to maintain the interior of the property as opposed to a full repairing lease. As an alternative, whilst not as good as an internal repairing lease the tenant can agree to leave the property as they found it. In this situation, it’s important to have a Schedule of Condition that provides evidence of what state the property is in at the start of the lease. If there are repairs you think should be carried out before occupation then now is the time to mention them.
For personal advice on any commercial property matter please call 01282 695400.
