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Deciding to find a new commercial premise for your business is both an exciting and nerve-wracking time. To ensure your business progresses, you must ensure the commercial lease you enter serves your business needs. Before you take the plunge and sign the lease agreement, you should ask some key questions. This article will consider the three key questions a prospective tenant should ask before they enter a commercial lease in the UK.
1. Do You Understand the Legal Commitment?
The first question a prospective tenant should ask before entering a commercial lease is whether they understand the legal commitment a commercial lease entails. A commercial lease is where you, as a business tenant, have the sole occupation of the commercial premises for your business use. In return, you pay rent.
The details of a commercial lease are in the commercial lease agreement. This is what you and your landlord sign when you enter a commercial lease. It contains your rights and obligations. You are bound by this legal contract for the length of the lease term unless your landlord agrees to a mutual early surrender of the lease.
There may also be lease clauses which allow you to end your lease, such as:
- a break clause;
- an assignment provision, or
- a subletting provision.
2. Is This the Right Commercial Property for Your Business?
Perhaps this is an obvious question, but the second essential question a prospective tenant should ask before they enter a commercial lease is whether the lease is the right commercial property for them. You will need to consider:
- the location, such as whether it is near your customer base;
- nearby competition; and
- the type of building, such as office space or retail space.
The size of the business premises is one consideration, both in terms of what business activity you will carry out and also in terms of the rent you pay. Your lease agreement should detail the exact premises measurements.
Another critical factor that can make or break your decision to enter the commercial lease is the permitted business use of the commercial property. You must ensure the lease allows your business activity on the retail premises. This depends partly on local planning laws and what commercial landlords allow. The lease agreement should detail this under ‘class use’, where different activities are permitted under different class uses. The lease agreement will also describe activity prohibited in the commercial property.
This cheat sheet outlines what you should be aware of in your lease agreement.
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3. Can You Afford It?
Once you have answers to the above two questions and are keen to proceed with the commercial lease, a crucial question to ask is if you can afford the commercial lease. The main cost of a commercial lease is the rent amount. You can negotiate with your landlord before you enter the commercial lease.
In addition to how much rent is and when it is due, other factors may affect the cost. For example, any:
- rent-free period when you enter the commercial lease;
- potential rent increase, which a rent review clause will detail; and
- possibility of a lower rent at the outset to offset fit-out costs.
Unfortunately, rent is not the only cost of a commercial lease. Aside from costs associated with the move, such as moving expenses, you need to consider, for example:
- the rental deposit amount;
- any service charge;
- any insurance costs; and
- general maintenance costs from the lease obligations.
Key Takeaways
Before entering a commercial lease, there are vital questions you should initially ask. Entering a commercial lease is a legal commitment, so it should not be something you rush into. Before signing off on the lease, a prospective commercial tenant should consider:
- your rights and obligations under the lease;
- whether the commercial premises suits your business; and
- the cost of entering the lease arrangement.
If you need help with your lease agreement, 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.
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