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As a commercial tenant, you must agree to a lease agreement for your property with terms that suit your business needs. Indeed, you should negotiate terms that do not suit you during this time. Further, you may wish to get advice from a commercial property solicitor. This helps avoid a situation where you commit to a commercial lease that does not work for you. This article will explain how you, as a UK tenant, can negotiate your commercial lease agreement.
Commercial Lease Agreement
When you find commercial premises that suit your business needs, you will need to sign a commercial lease agreement with your landlord. This legal contract states that you can occupy the property for a specific time. This period is the ‘lease term’. In return, you pay your landlord regular rent for your business occupation.
A lease agreement will have many lease terms and clauses with obligations on you and your landlord. For example, your commercial lease agreement will detail the following:
- the rent rate;
- what you can and cannot use the premises for; and
- who must make specific repairs and maintenance for the business premises.
You can negotiate the details of the lease terms in your lease agreement. We outline some points to consider below.
Protected Lease
Before signing a lease agreement to begin your commercial lease, you should ensure you know if the lease is a protected lease, which means it is a lease with the security of tenure. This means that when you reach the end of your lease term, you have a legal right to renew your lease and to new lease terms when you do so.
A commercial lease that does not contain the security of tenure will usually include a clause that opts out of this, so look out for one and try to negotiate security of tenure if this is more suitable for your business. Keep in mind that it is becoming more complex for landlords to gain a protected tenancy, with many landlords pushing for an opted-out lease.
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Rent Negotiations
The rent you pay for your commercial lease will be one of your major business expenses. Therefore, you can negotiate the rent amount to get the lowest price your landlord will agree to. Generally, negotiation on the rent must happen early on in the agreement. If you are lucky enough to negotiate a cap on increases, this will help you budget future rent expenditures. If you cannot negotiate a lower rent rate, be sure that you understand how the rent increase (if there is one) will apply and prepare for it.
Consider negotiating a rent-free period. This is a period where you do not have to pay rent, generally at the beginning of your lease. This is helpful as it can raise cash for your costs to move in and alter the property. It is common for commercial landlords to agree to this with their tenants, so it is worth trying for one between three and six months in length. Your landlord may agree to this to assist you with the alterations you must make to the property to ensure it is suitable for your business use. They may also decide to make the property more attractive on the market.
Lease Term
Likely, the other key point on your mind when you enter a commercial lease is how long you plan to occupy the property as your business premises. With this in mind, you should negotiate a realistic lease term for your business.
Consider if a short-term or long-term lead suits you best. You may think the latter if you are confident about your business growth or the former if you are a startup. You should note that a long-term lease may offer more flexibility than a short-term lease. However, it may result in more stamp duty being payable and the requirement that it is registered on the landlord’s title.
When you negotiate the lease term, you may also wish to negotiate a break clause if it is a long-term tenancy. This will allow you to end the tenancy early if you need to. You can also request a tenant-only break clause to avoid the landlord ending the tenancy early. Your landlord may agree to a one-off right for you to end the lease, which could be at a given point in your fixed term after a certain amount of prior notice. Instead, they may decide to a rolling break right, allowing you to terminate your tenancy at various points.
Repair Obligations
Your commercial lease agreement for your commercial premises will include lease terms and repair obligations. You should negotiate these to ensure that you are happy with what your responsibility is and what your landlords are.
As the tenant, you should negotiate repair obligations to only cover interior maintenance. Indeed, your landlord should be responsible for general structural maintenance. Therefore, avoid a ‘full repairing lease’ or a ‘full repair and insuring lease’ (FRI lease). This might mean insurance is also up to you as the tenant. Further, a good idea is to anchor your repair obligations to a schedule of conditions and negotiate to keep the property and leave the property in no worse condition than that.
If your lease includes a general obligation to maintain, keep and put the property in good repair and condition, you could find it is obliging you to put it into better condition than you received it, which can be costly. A schedule of conditions also informs how you hand back the property at the end of the lease in terms of condition – your lease may still oblige you to remove alterations made during the term when you leave.
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Key Takeaways
Before agreeing to a commercial lease, you should attempt to negotiate it with the landlord. You can do this in various ways, as your lease agreement will cover many different topics. For instance, you may arrange protection with the security of tenure and a break clause. You can also negotiate the details of your repair obligations to ensure you do not have a whole lease. Doing so can also limit your obligations to a schedule of conditions.
If you need help understanding how to negotiate a lease agreement in the UK, our experienced leasing lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents for a low monthly fee. So call us today on 0808 196 8584 or visit our membership page.
Frequently Asked Questions
A commercial lease agreement is a legal contract between you and your landlord which details your business’s occupation in their property for a fixed time.
As a commercial tenant, you can negotiate a lease agreement in many ways. For example, you can negotiate terms around your rent which can include the level of rent, rent-free period and a cap on rent level for the future.
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