I Run a Micro Business. What Should I Know Before Entering a Commercial Lease in the UK?

However excited you may be to move your company into its business premises, there are many considerations you should think about before you become a business tenant and sign a commercial lease agreement for the premises. A lease agreement will detail many points, including your responsibilities, such as your monthly rental payments. Hence, you should ensure that you understand your commercial lease and that it is as beneficial as possible for your company. This article will explain some points that a micro business owner should know before entering a commercial lease in the UK.

What is a Micro Business?  

As a micro business, you are a small and medium-sized business (SME). In the UK, 99% of enterprises are micro businesses like yours, and SMEs are responsible for 48% of employment. As a micro business, you may, for example, be a:

• start-up;
• a family business, or 
• a business which has been around for some time.

There are many points every business should be aware of before entering a commercial lease, but as a micro business, some will be particularly significant to you. We list some of these below.

What is a Commercial Lease?

A commercial lease is when you, as a commercial tenant, commit to commercial premises with a landlord. You occupy the property or part of it for business use for a specified period, which you may refer to as a fixed term. 

In turn, you pay your landlord or lessor a regular rental payment. You will sign a commercial lease agreement when you enter a commercial lease, and this is a legal contract between you and your landlord. It will contain all the details about your commercial lease. 

Check the Commercial Classification

Signing a commercial lease agreement should detail what you can and cannot do with the business premises. This can depend on the commercial category the business premises falls under. It would help if you were sure that it falls under one which covers the activities of your micro business. If not, you might commit yourself to a lease agreement and business space, which you cannot, in reality, run your micro business from. Some of the categories are:

• A1 retail premises such as a shop or hairdresser;
• A2 financial and professional services such as a solicitor or estate agents; 
• A3 places where you can consume food and drink, such as a cafe or a restaurant; and
• B1 premises used for business use as an office.

Can You Afford the Lease Costs?

Whilst rent payment is an obvious cost you will incur when you enter a lease agreement, there are other costs associated with your commercial lease which you will need to consider. For example:

• a deposit which can be a significant amount and potentially up to six months’ rent;
• utilities such as electric usage which may not be part of the costs in your lease, so a cost to budget for;
• service charges for the property which should cover your use of shared areas and facilities such as lifts, lightings and garden space; and
• any maintenance or repair fees which are responsible for.

What is a Security of Tenure?

A lease agreement that is for a business tenancy may be a protected lease or an unprotected lease, depending on whether it is contracted into or out of specific leasing legislation. The primary right a protected tenancy gains is a security of tenure. 

A protected lease benefits you as a micro business because it means that when the fixed term of the lease ends, the lease will not automatically end. You will be entitled to remain in the business premises until you, or the landlord, follow a particular process to end or renew the lease. So you should check if your lease agreement is protected before signing it.

Do I Need a Break Clause?

When any business enters a lease agreement, it will be for a specific timeframe. You commit to this and, therefore, take the risk that you can continue to do so for that duration. However, as a micro business, you are a small or medium enterprise and could even be a start-up. Your business may progress well, but it could be slow or even fail after taking the commercial premises. Therefore, before entering a commercial lease, you should check if it has a break clause. Hence, you should try and negotiate for a break clause as early as possible commercially if you feel you will need one.

A break clause will either be one-way or mutual. A one-way clause means only you or the landlord can break the lease. A mutual clause means that both you and the landlord have that right.

Should I Get Legal Advice?

Commercial lease agreements are contracts you and your landlord should negotiate before signing. You can change specific clauses or add terms which suit your micro business. However, it would help if you got legal advice as you likely know little about commercial lease agreements or property law. It would help if you got this from the outset rather than when you are due to sign. 

Key Takeaways

As a micro business about to enter a commercial lease, there are many things you need to look out for before signing the lease agreement. You must be aware of these and check them before committing to a lease that does not suit your business circumstances. For example, you need to know all the costs associated with your lease, such as rent, maintenance, and repair fees. You should also check if you have a break clause to allow you to end the lease agreement before the fixed term if your business does not progress as you wish.

If you need help understanding commercial leases in England, LegalVision’s experienced leasing lawyers can assist as part of our LegalVision membership. 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.

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