There are many types of interest which can be taken when acquiring commercial premises. The most relevant for you is to take a lease of part of an office building. Some of the below are relevant when acquiring a whole building; however there are more issues to consider for a lease of part.
The below list isn’t exhaustive, it covers the issues which are likely to delay or cause difficulties if not addressed at the right time:
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.
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.
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.
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.
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.
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.
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.
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.
Written by Susan Miller
Commercial Real Estate Specialist at My Inhouse Lawyer
One of our values (Growth) is, in many ways, all about cultivating a growth mindset. We are passionate about learning, improving and evolving. We learn from each other, use the best know-how tools in the market and constantly look for ways to simplify. Lawskool is our way of sharing with you. It isn’t intended to be legal advice, rather to enlighten you to make smart business decisions day to day with the benefit of some of our insight. We hope you enjoy the experience. There are some really good ideas and tips coming from some of the best inhouse lawyers. Easy to read and practical. If there’s something you’d like us to write about or some feedback you wish to share, feel free to drop us a note. Equally, if it’s legal advice you’re after, then just give us a call on 0207 939 3959.
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