Negotiating Leases for Commercial Property

Negotiating Leases for Commercial Property

The process of leasing a commercial property involves much more than just finding the right location.

One crucial step is negotiating the lease terms. A well-negotiated lease can provide stability, predictability and savings.

Whether you’re a tenant or a landlord, understanding the dynamics and content of the property lease can ensure that the leasing process aligns with your commercial objectives.

Understanding Commercial Property Lease Agreements

A commercial property lease agreement is a legally binding contract between a landlord and a tenant. It dictates terms under which the tenant can use the commercial property for business purposes. The same basic principles will apply regardless of the size and location of the property, be it a retail shop, office space or warehouse.

Here are some of the most important points to consider when negotiating a new lease:

Expectations from the Negotiation Process

• How much Rent will be payable: A starting point would be to try and find out how much rent is being paid for similar properties in the area to make sure that you are not paying over the odds.
  How much will the rent increase by? As well as the starting rent, make sure that you are happy with how the rent will increase over the term of the lease. How often will the rent increase and on what basis? There may be a market rent review or a review that is linked to turnover or CPI/RPI
• Lease Duration & Renewal: Decide the length of the lease. Short-term leases offer more flexibility, but long-term leases might provide stability and potentially better terms, and may be cheaper overall. Will the tenant have the right to renew the lease at the end of the initial term?
• Maintenance and Repairs: Determine who will be responsible for maintenance, repairs, and any associated costs. This includes common areas and structural elements of the building. The tenant will need to be clear on what condition the property will need to be returned at the end of the lease
• Break Clauses: A break clause allows either party (but often just the tenant) to terminate the lease early, providing a safety net in uncertain circumstances.
• Assignment and Subletting: Understand the tenant’s rights regarding subletting space or transferring the lease to another party. Will consents be required and will there be any restrictions?
• Permitted Use: Clearly define the permitted uses of the property to ensure your business operations are not restricted. This is defined by the Use Class Order, which must tally with what the occupier intends to do (although it may still be necessary to obtain planning permission for the proposed use)
  Insurance Discuss who will bear the cost of insurance and the extent of coverage required. Usually, the landlord will insure and recover the cost from the tenant.
• Fit-Out Works: Fitting out a building with equipment, hardware, and other work required for the new business may present an opportunity to negotiate a short rent-free period while the works take place. The landlord may also agree to contribute to the cost. A tenant will want assurance that they will be able to carry out required works before they commit to a lease.
  After negotiating on key terms, the agent will draw up a “Heads of Terms,” which will set out the main content of the lease. While this isn’t strictly legally binding, it’s important to not sign anything until both parties are happy to proceed.

Tips for Successful Lease Negotiations

• Do Your Research: Before entering negotiations, research comparable rates and lease conditions in the vicinity.
• Seek Legal Advice: Always consult with a solicitor experienced in commercial property leases. They can identify potential pitfalls, ensuring that your interests are protected. Appointing a specialist solicitor is absolutely essential.
• Prioritise Your Needs: Understand what’s essential for your business. Whether it’s location, space, or rent flexibility, be clear about your priorities.
• Be Ready to Walk Away: Sometimes, the best negotiation strategy is to be prepared to find another property if the terms don’t align with your needs.
• Document Everything: Ensure all negotiated terms are explicitly mentioned in the lease agreement to avoid future disputes.

Conclusion

Negotiating a commercial property lease can be complex and should not be rushed. A well-negotiated lease fosters a strong foundation for a long and fruitful business relationship.

By doing your research, prioritising your needs, and seeking professional guidance, you will be taking an important step towards making sure that the commercial property/lease serves as an asset, not a burden.

Batt Broadbent offer property lease advice and guidance, including assisting with commercial property leases. Contact us here to find out how we can help you.