10 tips for tenants when negotiating a new commercial lease
- 1. Planning Use
It ius imperative that the premises you are considering leasing have the correct plannining use. If they don’t, this could be catastrophic. If t there is a problem, you can agree a lease subject to the Landlord applying at his expense to change the use.
- 2. Service Charges
With some building service charges can fluctuate and can prove to be very expensive. Most leases will have clauses which may be highly favourable to the Landlord in relation to service charges so always consider whether it is worthwhile and/or possible to an annual maximum service charge cap.
- 3. Personal liability
This is another common area of major contention. Seek to avoid personal liability if at all possible. Instead if necessary offer a rent deposit but also seek to limit the term of any personal guarantee by amount or time and be wary also of authorised guarantee agreement (AGA) clauses in leases.
- 4. Taxes
Be aware of 3 possible property taxes on entering into a lease :-
a) Stamp duty – doesn’t apply to the majority of leases but should eb checked before you proceed with the transaction
b) VAT on rent – with most leases this does not apply as the Landlord will have an exemption which in the vast majority of cases they do not waive, for obvious reasons. If they have waived it, they will charge VAT on the rent.
c) Business rates – will be payable and can be very expensive. Imperative to check before incurring costs.
- 5. Financial concessions by Landlord
In the current economic circumstances, it is always worth attempting to negotiate a rent free period and/or other financial concessions from the Landlord. Also, it is important to seek to agree a break clause, preferably on your side only. If the Landlord will not agree this, seek to negotiate clauses relating to assignment or sub-letting which are less onerous than the norm.
6. Lease renewal
The starting point for most leases is that the tenant has statutory right to renew the lease subject to complying with the correct procedure and certain exceptions. The Landlord may well seek to avoid this. If you are prepared to concede this point, seek concessions from the Landlord in other area.
- 7. Right to alter
Most Leases prevent any alterations without the consent of the Landlord and this may include signage. Consider what alteration s you may make and ensure that the lease clauses are fair to you.
- 8. Schedule of Condition
One of the most common and most expensive disputes between landlord & tenant at the end of a lease relate to alleged dilapidations. It is almost always worth trying to agree a schedule of condition at the outset, or at least to take photographs at the beginning of the lease. Be aware also of the vital difference between a clause requiring the tenant to “put and keep” the premises in a certain condition as against the more usual obligation just to keep the premises in the condition they were at the beginning of the lease.
- 9. Rent review
From a tenant’s point of view these are important points :-
- Should be no more regular than every 5 years
- Carefully consider the technical rent review clauses – be wary of any “upwards only “
- 10. Buildings Insurance
Check how much you will be asked to contribute towards the Landlord’s policy.
