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As a commercial landlord, you should always have a commercial tenant leasing your business premises and paying you rent. Otherwise, you will struggle to earn an income from the property! However, the property industry is competitive, so prospective tenants may not choose your commercial lease over another. Also, not all business owners want to commit to a legally binding commercial lease. Therefore, you should consider making your commercial lease flexible. This article will explain how to make your commercial lease more flexible for prospective tenants.
Why Offer a Flexible Lease?
As a commercial landlord, you must sometimes be willing to make your commercial lease more flexible for prospective tenants. This is because markets can be uncertain, and with the recent pandemic, Brexit and current cost of living, businesses have had to adapt and cut back on expenses. Committing to a long-term commercial lease may be difficult for a business owner. Therefore, flexible leases are becoming more popular. This has been seen predominantly in the office lease market, where leases can be as short as six-months or just six weeks.
What are Flexible Leases?
Below, we explain ways to make your commercial lease more flexible for prospective retail tenants. It would help if you considered these when you and your future tenants negotiate lease terms.
Short-Term Lease
A way to make your lease more flexible for prospective tenants is to make it a short-term lease. This means the lease end date is closer than you may have intended if you had a long-term lease. Where your tenant is usually tied to the commercial lease for the entire term, a shorter commitment may be more viable if they are still determining business needs and budget.
As a landlord, you may find a short-term lease beneficial too since, if your commercial tenants start to find the commitment to the lease difficult, it saves you potential rent arrears and the costly and time-consuming action you may need to take for this.
Break Clauses
If offering a short-term lease does not suit you as a commercial landlord, consider offering a break clause in your lease agreement. This is a different way to make your commercial lease more flexible to prospective tenants, and it also reassures you that a tenant may occupy your commercial lease for a lengthy time.
A break clause is a term in a commercial lease agreement that allows the commercial tenant or commercial landlord to terminate the lease agreement before the lease term ends. You can either:
- set specific dates a party can exercise this right;
- set a minimum period of occupation before a tenant can use the break clause; or
- have a rolling clause which means you can exercise the break clause at any point.
The latter will make your commercial lease particularly flexible but may not give you the security you wish for.
Alienation Clauses
Alienation clauses govern what a tenant can do to transfer, lessen or share their lease obligations in a commercial lease. Landlords often restrict what a tenant can do, but one way to make your commercial lease more flexible is to be more lenient with alienation causes. This means your commercial lease will allow your tenant to:
- assign the lease;
- underlet the lease; and
- share occupation of the commercial premises
Rent Review
Commercial leases of over five years will generally contain a rent review clause that allows the landlord to review the amount of rent the commercial tenant pays. It is important to include a rent review clause to ensure you lease your commercial property to reflect the property value. However, you could consider being less stringent with this than is typical of rent review clauses.
Cost Flexibility
If you can be flexible about costs in a commercial lease, this will make the commercial lease more flexible. Of course, the obvious cost is the rent price or providing a rent-free period. However, there are other ways, such as including the fit-out costs of the commercial premises in your commercial lease. Also, commercial landlords with office space may offer serviced offices, allowing a commercial tenant to pay a lump sum, including costs they would have had to budget for.
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Key Takeaways
It can benefit you and your prospective tenant to make your commercial lease flexible. This can help you secure a commercial tenant for your property, which may be difficult due to market instability. There are various ways your commercial lease agreement can offer a flexible lease. For example, you can provide a short-term lease or include a break issue in the lease agreement to allow for circumstances where a business cannot commit to the legal lease agreement any longer or for an extended period. You could also think about how you draft your rent review clause in your lease agreement to offer flexible terms, such as possibly basing rental increases on turnover of your tenant’s business.
If you need help understanding how to make a commercial lease more flexible in the UK, LegalVision’s 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 commercial lease is where a commercial landlord allows a business owner to occupy their commercial property as their business premises in return for rent.
As a landlord, you can make your commercial lease more flexible for commercial tenants in many ways, such as by offering a short-term lease.
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