When you find a commercial property that meets your business needs, you may be desperate to sign the lease and get moving. However, rushing into an agreement without being certain that it benefits you as a business can potentially leave you in a sticky situation with no room for negotiation.
The premises you choose for your company can be make or break, but so too can the lease. Before signing anything, it’s essential you negotiate the terms with your landlord and come to an agreement that meets the individual needs of both landlord and tenant.
Since opening our doors, the commercial property team at Preston Redman has helped a wide range of businesses to negotiate the terms of their commercial lease. Now we think it’s time to share our secrets with you, so that your business can benefit from the lease as well as the premises. We’ve listed below some tips that we believe are key in securing the right commercial lease.
1. Opt for a short-term lease
Regardless of the rate you’ve been offered, it’s wise not to take out a commercial lease longer than 10 years. If you’re able to negotiate an acceptable rate for a short-term lease, we highly recommend you take it. Business can change at the blink of an eye: profits can rise and fall, and often it’s difficult to forecast for failure. If your business struggles, the long-term liability of a 10-20 year lease will become a burden to you and your business. Well-established businesses often enter into long-term leases as they provide stability, and in many cases, their location allows for increased proximity to customers. It may also be the case that a longer lease will allow for more room to negotiate the terms and conditions. However, due to the lack of flexibility in a long-term lease, you will be smart to avoid the risk. If you’re worried about losing the location, make sure that the terms of the lease include guaranteed renewal should you wish to remain.
Note: If you do opt for a longer lease, ensure that the terms of the lease include a break clause (see Tip 4.)
2. Be careful of hidden costs
When it comes to commercial property, there are certain costs that are unavoidable. For example, it’s normal practice for a commercial tenant to pay rent, and the agreement should clearly state the amount you will be required to pay as well as the dates of when the funds are due. However, be wary of hidden costs that your landlord may not reveal prior to signing the agreement that will impact your overall spend. Hidden costs can include a service charge for any ongoing maintenance as well as building insurance. Ask your landlord to provide you with an exact breakdown of the costs prior to signing the lease so you can make a decision about whether or not it is financially viable for your business.
3. Always consider repairs
Before signing a commercial lease agreement, it’s vital that to ensure that a clause stating exactly who will be responsible for repairs and maintenance during the lease has been included. While this may be something you will be able to negotiate with the landlord prior to signing the lease, there may still be certain obligations regarding maintenance that you must adhere to, and knowing this before entering into a legally binding contract is crucial. When negotiating repairs and maintenance, your aim should be to divide the responsibility between you and your landlord to take some of the weight off your shoulders. Upon your first visit to the premises, we recommend you take a series of photos and detailed record of the condition of the property. If your lease states that you must restore the premises to the same condition at the beginning of your tenancy before you leave, you’ll save yourself potential disputes by providing evidence.
4. Include a break clause
If your business begins to struggle and you need to end the lease early, you won’t be able to do so unless your original commercial lease agreement includes what is known as a ‘break clause’. A break clause is a protective clause that allows you to end the lease early without worrying about your finances. While it’s vital to ensure your lease includes a break clause, it’s just as important to discuss and negotiate the terms and conditions of the break clause with your landlord before signing. Often, the pre-conditions of a break clause will involve the tenant making all rent payments due in the lease, which could prove problematic for you if your business is not making a profit. Therefore, negotiating with your landlord a break clause that does not rely on pre-conditions prior to signing the lease is a smart move.
5. Always negotiate
Before signing a commercial lease, take advice from a solicitor and your best tool is negotiation. Simply put, if you don’t ask, you don’t get. Certain clauses could be adapted to meet your business requirements, but the only way to know is to try. Having an experienced commercial property solicitor on board can help you understand the legal implications of your lease as well as assisting you with the negotiation of your terms.
For advice and assistance on commercial leases, call our team Jeremy Clough or Rebecca Kefford on 01202 292 424, fill in the enquiry form at the top of the page or send an email to jec@prestonredman.co.uk or rmk@prestonredman.co.uk