Ensuring your commercial property lease works for your business

When taking a lease of property for your business, it is essential to ensure that the lease is tailored to your needs and objectives, and that it does not leave you or your business exposed legally or financially.

Below are a number of significant lease clauses that, if not negotiated properly, can restrict your rights and adversely affect your ability to maximise business opportunities.

If your lease is for longer than 5 years, its is likely to contain a provision that reviews the current rent you pay (known as “rent review”).

Landlords normally require an “upward only” rent review, which means that the rent can only ever increase or stay the same but cannot decrease There are several important clauses that can ensure the rent you pay can be reduced as well as increase.

It may be worth trying to negotiate a rent free period at the start of the lease. This will provide a period of time from the date the lease commences for you to fit out the property without being charged rent. This is particularly important if you cannot trade until the property is fitted out.

Planning legislation may restrict your intended use of the property. However, you should make sure the lease doesn’t impose further restrictions on use that would prevent or unduly restrict the running of your business. It is essential that your intended use of the property is clearly defined in the lease to prevent any ambiguity that could result in dispute.

You should also bear in mind the fact that, if you wish to assign the lease to a third party before it ends, he or she may wish to use the property for another purpose.

You should pay close attention to the repairing and decorating clause in your lease as its wording could involve you incurring significant expense.

It is a clause that, with the right expertise, can be negotiated considerably in your favour. The first objective would be to limit your obligation to keeping the property in the state of repair it was in at the start of the lease. You may then be well advised to have the property surveyed by a chartered surveyor before signing. He or she will be able to advise on the condition of the property at that time so that you can clearly demonstrate the extent of your repairing obligations.

With the right expertise, you may also succeed in restricting any service charges for repair work (where the landlord is to carry out the repairs) to a specific maximum, known as a “cap”.

A lease often contains restrictions on making alterations or extensions to the property but may permit internal alterations, provided the landlord gives consent. Although the landlord’s consent is often required, effective negotiating skills will ensure such consent cannot be unreasonably withheld.

The landlord will usually insure the property and you will pay the premiums. Where the landlord insures, you should ensure that consequential damage or losses to your business (including loss of profits) are separately covered by you, as they will not be covered by the landlord’s policy. Again, expert negotiation can secure a clause that allows you to approve the form of the policy document, so as to ensure that it provides adequate protection for your business.

In the case of a lease for more than three years, negotiating a “break clause” is crucial to allowing you to terminate the lease with effect from a specified date or dates. In those circumstances, you would usually be required to give at least six months’ notice in writing expiring on the specified date.

Ultimately, your lease can be instrumental in enhancing your business interests and its clauses should not be overlooked.

Here at Linder Myers, we have specialist lawyers vastly experienced in lease drafting and honing expert lease negotiation skills. We can therefore ensure that your business interests are thoroughly protected and that the terms of the lease cater adequately for your business needs.

Contact Julian Rogozinski for further information and advice.