Commercial Leases: Top Tips for Tenants

Taking out a lease on a commercial unit can be a formidable prospect whether you are a brand new company or if you have been leasing property for several years. Leases can often run to over thirty pages and so finding your way round the complicated terminology can be daunting.

To help avoid any potential pitfalls, here are a few of the most important things to look out for when considering your new lease:

How long will the term be?

A typical commercial lease term is around five years but a different period can be agreed between the parties. The term required needs to be carefully considered when entering into a lease and will very much depend on the business.

You may require the security of a fixed location for the foreseeable future or perhaps you’re planning to expand after a year or so this will need to be considered in negotiations before anything is signed.

Will there be a break clause?

The inclusion of a break clause in a commercial lease can be very valuable should your business venture not go strictly according to plan. This type of clause will allow a tenant to end a lease at a certain time before the full term ends.

For example, you could take out a lease of a retail unit for five years with a break clause which can be triggered after two years. If sales are not as good as expected you could end the lease at the two year mark and find a better location.

In order to include such a clause, the rent demanded by the landlord may be higher, and you would need to give sufficient notice, but the flexibility afforded by this clause could be invaluable to prevent you from being tied into premises that aren’t suitable for your business. However, it is also important to bear in mind that if the landlord has the mutual benefit of this break clause, then your lease could end sooner than initially expected.

Will I have security of tenure?

Ideally you will want to be protected by Landlord and Tenant Act 1954. This will ensure that you have the legal right to renew the lease automatically when it expires, and the landlord can only object on limited grounds.

If you only want to lease the premises for a very short period then you may decide to exclude the provisions of the Act. However, if the business grows and you decide you want to remain in the property at the end of the lease, if you are not protected by the 1954 Act then the landlord will be within his rights to ask you to leave. This is an important feature of the lease to take legal advice on.

What can I use the property for?

Leases will normally have a clause that specifies the type of activity that the landlord will permit the tenant to carry out at the premises. It is important to check this part of the lease very carefully to make sure that the type of business you want to carry out on the premises is permitted as specific ‘classes’ will often be mentioned in the lease which your solicitor will be best placed to advise you on.

If you fail to comply and breach this clause you will place your tenancy at risk.

What are my repairing obligations and can I make alterations?

A commercial lease will often contain a term that places an obligation on the tenant for ‘full repairs and insurance.’ Remaining liable for such repairs can be very onerous on the tenant as you could find yourself in the situation whereby you may be responsible for major works to the property completely disproportionate to the term of your lease. It is important to negotiate this point to ensure that any obligations you do have are proportionate to the length of the lease and the state of the property when you take out the lease.

If you think you will want to make minor changes to the property it would be useful to try and negotiate that that landlord’s consent will not be needed for such alterations and that consent will not be unduly delayed for larger alterations.

What are the next steps?

Each point listed is an important clause to look into when you take out a lease for commercial property - but is not an exhaustive list. If you breach any of the terms the landlord will often be able to end the lease by forfeiture and take back their property.

Therefore, it is vital that you seek legal advice before signing a commercial lease so that you can ensure that you have the right property, for the right length, with the right protections in place.