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You might rent a commercial space for your business as a business owner. The arrangement details will be in your commercial lease agreement with your landlord. As you will negotiate the details of this before you sign your lease agreement, you must include lease clauses that benefit you as the commercial tenant. This article will explain some good clauses to include in your lease agreement as a tenant.
What is a Lease Agreement?
When you occupy business premises, you will have a commercial lease. Details of a commercial lease are in a commercial lease agreement. For example, a lease agreement will detail that as the commercial tenant, you have sole occupation of the business premises or part of it in exchange for a rental fee. Your lease agreement will also detail the fixed term of the lease, which is the period of occupation as well as how you can use the commercial space for your business.
Commercial lease agreements will also contain the finer details of your commercial lease, such as the rights and responsibilities of you and your commercial landlord. These are set out in terms and clauses. For example, they may detail:
- the rent amount;
- whether the lease is a protected lease with the security of tenure;
- additional costs associated with the lease;
- any break clauses; and
- any rent review time frame.
What Are Some Good Lease Clauses?
Whether a lease clause is good is subjective, as it depends on your interest in the lease and your circumstances. However, we look at some lease clauses that may benefit you as a commercial tenant.
Break Clauses
Lease agreements will detail the lease term, which is the time you occupy the commercial property. In addition, lease terms will describe, for example, the notice you must give if you wish to leave the property. A break clause (or option to determine) provides you and your landlord with the flexibility to terminate the lease agreement early if necessary.
Not all lease agreements will have a break clause. However, this is a good lease clause for commercial tenants like you to include in a lease agreement. The type of clause that is good for a tenant allows the tenant to terminate the lease early, such as if you have a sudden change of circumstances. Often, break clauses will let the landlord terminate as well. Break clauses may detail any minimum tenancy length and conditions attached to the clause, such as the notice you must give to use it. Sometimes you can exercise them on a date. Other times, a lease agreement specifies the dates.
Exclusivity Clauses
An exclusivity clause is an important clause to look out for in a lease agreement. It gives your business certainty that you will not face direct competition within a specific space. For example, this is particularly important if you run a retail business and you lease a rental unit in a shopping centre.
You can negotiate the conditions of your exclusivity clause and define the radius between your store and the nearest competitor. A lack of direct competition in your business space makes you more likely to succeed. For example, if your business produces children’s clothes, you could request that any clothing stores within 150 metres of your store only sell clothes for adults.
Assignment Clauses
Sometimes commercial tenants may assign part or all of their lease to another party, and this is where you transfer or sell it. This may be useful if you need to end your lease early.
Also, if you have space in your commercial premises that is separate from the space you use and can be of use to another occupier, this could produce an income stream for you.
Fair Repair Clauses
Lease agreements will contain clauses about your obligation regarding repairs and maintenance to the commercial property. However, sometimes landlords can be unrealistic and unfair with the detail in these. Therefore, you should negotiate for a reasonable clause, such as one that does not require you to do repairs at the end of your lease term. Of course, this would mean the property has to be in a better state than you found it.
This cheat sheet outlines what you should be aware of in your lease agreement.
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Clauses to Look Out For
Utility and Common Area Payments
Some leases will contain clauses stating that, as the tenant, you are liable to pay utility bills and for the use of common areas. This, in turn, allows your landlord to pay for and maintain these facilities. However, your landlord may overestimate these costs to ensure that they can cover the necessary repairs. Be sure to review your obligations before signing the lease agreement. You may prefer to pay directly for these services rather than as part of your lease, and this will give you a clear picture of what your operating costs really are.
Legal Costs
Your landlord may want to include a clause stating that you, as the tenant, must pay their legal costs if a leasing dispute arises. You should look out for this clause in your lease and let your landlord know at the outset that you do not wish to include it.
Key Takeaways
Your commercial lease agreement details the terms and clauses of your lease for your commercial property. Particular clauses will benefit you as a commercial tenant, so you should be aware of them and include them in your commercial lease agreement. For example, a good lease clause is a break clause, allowing you to leave the lease early if your business circumstances change. Another good lease clause is a realistic repair clause that does not require you to leave the premises in a better state than when you began your lease.
If you need help understanding suitable lease clauses, 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. Call us today on 0808 196 8584 or visit our membership page.
Frequently Asked Questions
A commercial lease agreement is a legally binding contract between you and your landlord that details your lease for the commercial premises you occupy, such as the lease’s fixed term and the rent amount.
There are many clauses in commercial lease agreements, and an example of a good one for you as a commercial tenant is a rent review clause, which means your landlord will review your rent amount at specific points in your lease.
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