How to Negotiate Lease Incentives in the UK

When looking for a commercial property to run your business from, you want to find something that suits all your needs. As your lease agreement may likely be a large chunk of your business expenses, you want to choose the most financially suitable commercial lease. One way to do this is to negotiate lease incentives with your commercial lease agreement. These can make the property appeal more to you, help you decide which business space to take a new tenant, and ease your cash flow with a good lease agreement. To help your business, this article will explain how to negotiate lease incentives.  

Lease Incentives 

A lease incentive is a perk a commercial landlord offers a potential business tenant, like you, to persuade them to take on the business lease. They can also use them to entice a business tenant to renew their current lease agreement. Lease incentives cost commercial landlords, though you stand to benefit as a commercial tenant.

Lease incentives are often in the form of either a payment or a concession. Some typical lease incentives are as follows:

• a rent-free period which is a period in the lease’s fixed term where you do not have to pay rent for your occupation of the property;
• an associated rent incentive which is a period during the lease when you can pay ‘half rent’; and
• compensation for fit-out works.

Negotiating Incentives   

Sometimes, lease incentives may already be on offer by a commercial landlord for a specific tenancy. Where they are, they may not be exactly what you want. Therefore, understanding how to negotiate lease incentives as a commercial tenant is essential.

Key Considerations

Landlords benefit from rent incentives, so consider this when negotiating lease incentives. They can act as an alternative to a rent reduction, meaning your landlord retains the property value.

Specific factors will affect what lease incentives a landlord is ready to agree to, so it is helpful to consider these. For example, the following will affect lease incentives:

• the amount of genuine interest in the commercial property;
• current market trends; and
• how desirable the property is, which may depend on location.

Conversely, certain factors that affect you and your business will influence you when you negotiate lease incentives. You will need to think these through carefully to determine what lease incentives you negotiate, and you should consider how your business will benefit from those you select. 

Timing

You should negotiate lease incentives before making a decision to take on the business premises. Most incentives are agreed upon with the agent or the landlord (where there is no agent) at the pre-lease stage. Likewise, you would document the agreement in a heads of terms. 

Reasons

When suggesting specific lease incentives or variations to a commercial landlord, you need to be clear and what you want and why. It is important to have sound reasons to justify the incentive as part of your lease agreement.

Alternatively, you may need to do a lot of work before the commercial space is ready for you to operate your business. Therefore, you may suffer a loss of business, which you can raise with your landlord to seek compensation via a rent-free period.  

Another example is if you want to negotiate compensation for fit-out works, you may ask for a rent-free period to reflect these costs. Sometimes the landlord will agree or at least compensate for some of these costs. However, if you can present the landlord with works that benefit them, such as those they can use when you leave or those which add value to the building, they may be more willing to grant the incentive.

Key Takeaways

When leasing commercial property for your business premises, negotiating lease incentives can help you can get the best deal for your business. Lease incentives are perks your landlord offers as part of the lease agreement, such as a rent-free period in your lease. During negotiation, you want to consider the landlord’s position and yours as a business owner and find reasons to back your requests.  

If you need help understanding lease incentives for commercial property, 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 for a low monthly fee. So call us today on 0808 196 8584 or visit our membership page.

Frequently Asked Questions