Commercial Leases

• Premises

  What area is to be included? It’s likely that the area will include only internal and non-structural parts of the building. The landlord will want to keep the structure and exterior in one ownership so will retain it.

• Rights

  What rights will you need to access and use the premises? Examples include rights of access, rights to use services such as electricity; also rights to use any common areas such as lifts.

• Repair

  Consider repairing obligations, both for the area to be included and for the building as a whole. It’s a common misconception that an obligation to repair and maintain premises means that they must be kept in the condition that exists at the start of the term. In fact, the obligation will likely be much more onerous than that.

• Term

  Consider how long the term should be and whether you might need to end it early either by transferring the lease to a new business owner or by selling your business.

• Rent

  When agreeing rent, is there to be a review and if so on what basis? Five yearly upward only rent reviews based on open market value aren’t uncommon though much depends on the how the market is performing.

• Service Charge (including insurance)

  Landlords inevitably want to recover all of the costs of repairing the building, including the structure and exterior (so, for example, the cost of repairing or replacing the roof, lifts, and so on. They will also want to cover all insurance costs. This is potentially very expensive for tenants as well as being an unquantifiable expense.

• Alterations

  Most tenants want to do their own fit out (which will likely need landlord’s consent) so make sure you have full details ready for approval at the same time as lease negotiations and, if possible, a rent free period for the time that it takes for the fit out to be carried out. It is common for landlords to require reinstatement at the end of the term so ensure that you take account of the cost of doing this.

• VAT

  Many landlords will have elected to charge VAT in addition to the rent. If your business is VAT registered this matters less, however if it isn’t then consider registration if you can otherwise the VAT becomes a real cost rather than a cashflow issue.

• SDLT

  This will be payable on the rent. The amount will depend on the amount of the rent (plus VAT if payable) and the length of the term.

In conclusion, lease negotiations can be kept to a minimum if there are Heads of Terms which cover the above issues and any other issues which are likely to be contentious. We can help by reviewing the heads of terms to ensure these are covered. We can also make sure that the draft lease reflects the heads of terms. If it does then lease completion can be achieved more quickly and legal fees reduced because negotiations should be kept to a minimum.