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When you choose new business premises, there are many factors that you need to consider in your commercial lease. For example, the rent cost, the location and size of the commercial premises are all crucial considerations. However, it would help if you also considered the length of your lease since choosing a lease term is a significant commitment. Hence, this article will explain why a long lease term may benefit tenants in the UK.
LegalVision’s Buying a Business: Guide to Negotiating Terms allows you to protect yourself by understanding which key terms to negotiate when buying a business.
A Commercial Lease
A commercial lease is where a commercial tenant occupies a commercial landlord’s property for their business’s purpose. Essentially, the property becomes your commercial premises. Moreover, under a commercial lease, your landlord grants you the sole occupation of the property in return for the rent you pay them.
There are many terms and conditions within a commercial lease, which set out both parties’ rights and responsibilities. Furthermore, the lease is a legally binding contract. Therefore, there will be legal consequences if you fail to fulfil your duties.
What is a Lease Term?
A commercial lease can have a lease term of anything from 1 day to up to 99 years. However, for a commercial lease, the standard timeframe for the lease term is between 1 and 25 years. Whilst short-term leases are very common for commercial leases, some businesses opt for long-term ones. There are reasons why they may prefer a long lease term. We detail some of these below.
Stability
A long lease term can provide stability for your business. For instance, this may suit you if you wish your business to grow.
If the prospect of committing to a lease for a long period makes you nervous, there are some points you could negotiate with your landlord. You may ask them to consider the inclusion of a break clause to give you the option of termination before the lease term ends. Long-term leases often have a break option at natural phases, meaning you can terminate the agreement if you pay a set fee. Alternatively, your landlord may agree to permit you to assign the lease to end your obligations under it, transferring these to a third party.
Better Lease Terms
If you decide on a long lease term, you will likely be able to negotiate better lease terms with your commercial landlord than if you sign a short-term lease. This is because your commercial landlord has guaranteed tenants for an extended period, leaving no breaks where their property may be vacant in search of new tenants.
Precise Budget Planning
With a long lease term, you know you will likely remain in the same commercial premises. Therefore, you know your rental costs for an extended period, so you can budget accordingly and financially plan for your business.
However, you should note that your rent may change if your commercial lease has a rent review clause. This grants your landlord the right to periodically assess the amount of rent you pay and potentially raise this.
Specific Business Type
As a business owner, you may prefer a longer term because your business needs one. For example, if your business is in retail, a long-term lease will enable you to build goodwill around your premises over time.
Furthermore, if you need to install machinery or a fixed plant for your business, it makes sense once doing so to stay put in the commercial premises. However, if you wish to install equipment in your business premises, you should check the terms of your commercial lease regarding alterations. You should also know the rules around fixtures and fittings in commercial leases. The machinery will likely be a ‘tenant’s fixture’ and will remain yours when you leave the premises. Although, you must remove it before the lease term ends, or it could become your landlord’s.
Additionally, if removal could cause damage to the commercial premises, you may not be allowed to remove it.
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Key Takeaways
When you enter a commercial lease, you must think carefully about the lease term. This is the length of time you will occupy the property for. You may prefer a long lease term rather than go for a shorter one. Often, you can negotiate better terms this way. Additionally, long-lease terms can provide stability on your commercial premises as your business grows.
If you need help understanding the terms in your commercial lease, 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.
Frequently Asked Questions
A lease term is the time that your commercial lease covers, so the date when your lease and occupation of the property ends.
As a commercial tenant, you may prefer a long lease term because, for example, your business needs to fit machinery, so it makes sense to remain in it for some time. Where this is the case, be sure to make yourself aware of rules regarding fixtures and fittings to ensure the machinery as a ‘tenant’s fixtures’ remains yours.
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