Negotiating Leases for Commercial Property

1. 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.
2. 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
3. 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?
4. 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
5. 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.
6. 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?
7. 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)
8. 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.
9. 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.