Four Considerations When Negotiating a Commercial Lease

In a commercial lease, a property owner grants you, a business owner, exclusive occupation of their property as a business premises. The details of this arrangement are outlined in a legally binding contract called a commercial lease agreement, signed by both the landlord (property owner) and the tenant (business owner). Both parties are obligated to follow the terms of this agreement. Therefore, it is essential to carefully negotiate the lease terms before signing to ensure you are satisfied with your obligations. This article explores four key considerations for negotiating a commercial lease in the UK.

1. Heads of Terms

To initiate successful commercial lease negotiations, establishing a clear and comprehensive heads of terms document is crucial. This pre-contractual document plays a vital role by outlining the key elements the landlord and you want to be included in the lease agreement. Therefore, if you do not consider this, your negotiations at the commercial lease agreement stage may be fruitless.

2. Lease Term 

The lease term, which refers to the length of your occupancy, is a critical decision you, as a tenant, must make during commercial lease negotiations. It is crucial to ensure the end date aligns with your business plan and allows for a sustainable commitment. Commercial lease terms can vary significantly, ranging from short-term options of around four years to long-term commitments lasting up to 25 years or more. Carefully consider your business goals and long-term vision when negotiating the lease term.

When considering the lease term when negotiating a commercial lease, you may consider negotiating a break clause. It is common to include these in commercial leases. A break clause can allow either the landlord or you, the tenant, to potentially end the lease term before the lease term end date. Both parties to the lease should carefully consider the details of this break clause.

3. Security 

When you and a landlord enter a commercial lease, the landlord will ask you to provide some security for the lease. This will either be in the form of a rent deposit or a guarantee. Both parties will need to consider which the lease will require when negotiating the commercial lease. 

It is not a legal requirement to provide both a rent deposit and a guarantee, so you should be aware of this when negotiating. Landlords may also decide that they want to negotiate the inclusion of both.

4. Take Legal Advice

As a commercial lease is a legally binding contract, consider taking legal advice when negotiating your commercial lease. A property solicitor can provide critical advice which may affect how and what you negotiate in a lease. For example, they may help you understand a fair rent level for a commercial property. A solicitor can also take over negotiations for you. With their legal expertise, they are likely to negotiate a better commercial lease than you may be able to do yourself. 

Cheat Sheet for Leasing Terms

This cheat sheet outlines what you should be aware of in your lease agreement.

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Key Takeaways

Negotiating a commercial lease is vital to secure a space that supports your business goals. Prior to the creation of the commercial lease agreement, establish a heads of terms document with the landlord. Negotiate the lease term to align with your business plan and consider a break clause for potential early termination. Security deposits or guarantees are common, but you should negotiate which option best suits your needs. Finally, due to the legal complexities of commercial leases, consulting a legal professional is highly recommended. Their expertise can ensure you secure a fair rent, negotiate effectively, and have a lease that protects your business interests.

If you need help understanding key considerations when negotiating a commercial 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. So call us today on 0808 196 8584 or visit our membership page.