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When you lease a commercial property in the UK, you may have several financial obligations under your lease agreement. If you break a clause in your lease agreement, you could lose your commercial premises or even face a court claim from your landlord. This article will discuss your financial responsibilities as a commercial tenant in the UK.
Deposit
The first financial obligation you commit to as part of your commercial lease in the UK is paying security in respect of the lease. A deposit is normal and can be between three and six months of rent. You should get this back once you leave your business premises as long as you have not broken your lease obligations.
Premium Payments
When you enter a commercial lease, you may need to pay a premium payment to your landlord. This is in addition to your rent and may occur where:
- you agree on rent below market value;
- your commercial premises is in demand; or
- your landlord gives you an intangible asset or a form of goodwill.
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Rent
Your rental payments are the apparent payment that likely springs to mind when considering your financial obligations as a commercial tenant. These are traditionally quarterly payments but nowadays more likely monthly.
Your rental payments will not typically cover your bills for utilities in your commercial property, such as electricity or gas. It is also unlikely to cover your business rates which is the council tax due. Therefore, you will need to cover these separately as part of your financial obligations under a commercial lease. In addition, HMRC may require you to pay stamp duty for your commercial property.
Service Charge
Where the commercial premises you rent is part of a larger property, it may contain communal areas you and other businesses that occupy the building share. For example, it may include:
- a reception area;
- lifts;
- meeting rooms; or
- a breakout area.
If so, you will likely have to pay a charge towards these to help maintain them. A service charge may also cover upkeep costs for the structural walls of the building and the roof. You often pay service charges on account or on an ad hoc basis.
Insurance
As a commercial tenant, one of your financial obligations under your commercial lease agreement is to pay an insurance premium for your landlord for their building insurance. Alternatively, they may request a proportion of this if you share the property with other businesses.
Lease Transfer or Sublet
A financial obligation you may not be aware of when entering a commercial lease is the cost if you wish to transfer the lease or sublet part of your commercial premises to another person. You will need your landlord’s permission to do either of these, which they may incur costs for, and you will usually be liable for these. Costs can be for:
- their consideration of your request;
- the draft of the form you fill out for permission; and
- agreeing to your request.
Maintenance and Decor Costs
Your lease will also detail liability for costs associated with the maintenance and decor of your commercial promises. You may be liable for repair work to your commercial building or basic updates.
Also, when you first move into your property, you will need to ensure it can accommodate your business type. Often, you will need to account for fit-out costs, such as providing staff toilets or building a commercial kitchen if you run a restaurant.
Key Takeaways
When you take on a commercial lease as a UK tenant, there are a variety of financial obligations you must commit to. In addition to your rent payments, there are others, some of which may be regular costs, and others may be one-off but hefty costs. For example, you will likely need to pay a deposit before you move in, which could be as much as six months’ worth of rent, and you may have to pay a premium payment. You may also incur regular costs such as service charge payments. You should also account for your bills, such as utilities and business rates.
If you need help understanding your financial obligations as a tenant, 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 which governs your commercial lease with your landlord for your business premises.
As a commercial tenant in the UK, you can have various financial obligations under your lease, including rental payments, service charges and contents insurance.
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