I’m a Commercial Tenant. What Should I Avoid When I Negotiate a Lease in the UK?

As a potential tenant, you should negotiate the lease terms with your commercial landlord before entering into the lease agreement. It is important to ensure that each party is content that the lease terms meet their needs and are confident they can comply. This is important as it encourages both parties to abide by the lease and can decrease the chance of a breach of the lease agreement. Also, a commercial lease is a significant financial commitment. Accordingly, you must be comfortable with it. However, rather than focus on what you want to see in your lease agreement as a commercial tenant, it is also vital to consider what you wish to avoid. This article will explain some things you, as a commercial tenant, should avoid when negotiating a lease in the UK.

Commercial Lease Agreement

A commercial lease generally means you have the sole occupation of the business premises for a specific business use and a specified period. In return, you will make rental payments to your commercial landlord and carry out your other lease obligations. 

The details of a commercial lease are in the commercial lease agreement. This is a legally binding contract detailing your and your landlord’s rights and obligations. You will negotiate this at the outset of your lease through heads of terms. These are written documents of the key terms both parties intend to include in the lease agreement. Below we detail some points to avoid when negotiating a lease in the UK.

Name on Lease

A crucial point to avoid when you begin a commercial lease is to include your personal name on the lease as a party to the lease. Instead, you should use your company’s name as the commercial tenant in the lease agreement. This prevents you from being personally responsible for the lease. Similarly, where you intend to use a corporate tenant, avoid offering personal guarantees on the commercial lease. For example, suppose you are the tenant personally, or you are personally guaranteeing the tenant company. Then, if you fall into arrears with your rent, the landlord can try to recoup this from your income and assets by suing you personally.

Lease Term

When you negotiate your commercial lease, you should avoid negotiating the wrong lease term for your business needs. This is the difference between choosing a short-term and long-term lease. Each has advantages and disadvantages, which largely depend on your business outlook.

For example, if you are a startup and this is your first commercial lease, it makes more sense to commit to a short-term lease. You may not be able to predict how well your business will do to enable committing to a long-term lease. Also, you may grow quickly and need the flexibility to move to larger premises. 

However, if you are a large business, this may be your second lease as you are now ready to settle somewhere, so you may negotiate a long-term lease. Similarly, if you plan to invest in your commercial property, such as costly alterations or a fit-out, you may want a longer lease to make this worthwhile.

Neglecting Rent-Free Period

Do not forget to try and negotiate a potential rent-free period during your commercial lease negotiation. In commercial leases, rent-free periods are standard nowadays, so you should ensure you have one in yours. Your landlord may be amenable to this as it helps to ensure tenants are in the property and compensates them for repairs and fit-outs they may have to make.

Break Clauses

A break clause is a term in the lease agreement which provides a right to end the lease before the lease term ends under certain circumstances. However, avoid a break clause that allows your landlord a break right which means they can end the lease term early regardless of your wishes. A landlord’s break right can create instability for you and your business and potentially put you in a difficult situation when you rely on the premises for your business needs. 

Additionally, avoid any unreasonable conditions your landlord may wish to impose or your use for the break clause. This can include ensuring you carry out all your lease obligations before you use it. At a minimum, it is wise to ensure that redecoration clauses will not apply. However, most landlords will insist that you hand back the premises, having complied with any repair and ‘yield up’ provisions. These can require the removal of fit-out and alterations, so these are key negotiating points at the heads of terms stage. 

Alternations

When negotiating a lease in the UK, avoid alteration clauses that restrict you too much. Moreover, ensure that your commercial premises meet your business’s needs.

Whilst structural alterations are typically forbidden, non-structural internal ones should be allowed. Your landlord may, therefore, agree that you can alter the property with their consent. Often, you can avoid this altogether as long as you agree to inform them in advance.

Key Takeaways

If you are a business owner about to take out a commercial lease, you must avoid certain terms when negotiating the lease agreement. This helps you to secure a commercial lease agreement that works best for your business. For example, you should avoid having your personal name on the lease. You should also avoid offering yourself as a personal guarantor. Additionally, avoid break clauses that permit the landlord to end the lease early unfairly. Lastly, ensure you attempt to negotiate a rent-free period. 

If you need help understanding what to avoid as a commercial tenant when you negotiate a lease 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. Call us today on 0808 196 8584 or visit our membership page.

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