What Should a UK Commercial Tenant Look Out for When Renewing a Commercial Lease?

When you run a business, the premises you run it from is essential for your company’s progress. If you lease your commercial property as a business tenant, there will be a point when the commercial lease ends, and you may wish for a lease renewal. You may understandably worry about renewing your existing lease for your commercial property and find yourself rushing into a new lease without thinking. However, it is essential to consider specific points when renewing your commercial lease to ensure it is the right thing to do and that you get the best out of your lease renewal, such as new terms. This article will explain what you, as a commercial tenant, should look out for when renewing a commercial lease agreement.

Commercial Lease 

A commercial lease agreement is a legal contract between you and your commercial landlord which governs your commercial lease for the property space you exclusively occupy. A lease agreement will detail the terms and conditions of your sole occupation of the business premises, such as:

• the amount and frequency of rent payments;
• what you can and cannot use the business space for;
• the responsibilities of you and your landlord; and
• the lease term, which is the period you can occupy the space for.

When you get to the end of the lease term and wish to renew, there are several things you should understand. Let us explore these below. 

Security of Tenure  

When you renew your commercial lease, you need to know if you have security of tenure. A lease with security of tenure is a protected lease. With a protected lease, your lease will not automatically end unless the landlord has already given you notice and followed a specific legal process. Furthermore, you can request a lease renewal at the end of your term with the same or better conditions. Whether or not your lease has security of tenure will determine the procedure to follow to renew the commercial lease.

Reflection

Once you are clear on whether or not your lease is protected and, therefore, the terms of renewing your lease, you may take some to reflect. When your lease is due for renewal, consider if renewal is the best move for you.

Rental Prices

When you approach the time to renew your commercial lease, you may find your rent increasing or decreasing. It is helpful to make yourself aware of the current prices in the area for properties similar to yours. The property market may have changed since you began your lease, so you could be in a position to ask for lower rent payments. If you need more clarification, ask a surveyor to assess the commercial premises for evidence to supply your commercial landlord during negotiations.

Lease Term

An important point to look out for when renewing your commercial lease is the length of term you wish to renew. You may assume renewals apply for the same period as your current lease, but you may want a longer lease at the point of renewal. For example, if you and your landlord have a good relationship, they may consider a longer-than-average lease term of five to ten years.

In addition, you should note the possibility that Stamp Duty Land Tax (SDLT) may be payable on the new lease, especially if you did not have to pay SDLT initially. As the new term is considerably longer, the SDLT component payable on rent increases proportionately to the lease length.  

Property Condition

When you renew your commercial lease, you should look at the current condition of the business premises. You will likely ignore and accept certain parts of the commercial precisely as they are part of your everyday scenery. However, your commercial premises may require work done, so before confirming you wish to renew your lease, it may be time to approach your landlord about this. If your landlord is unwilling to make the changes and you still want to continue, consider negotiating a lower rental amount.

Key Takeaways

When it is time to renew your commercial lease, you should look out for certain things. Firstly, before you decide that renewal is the best option for you, it is helpful to reflect on the effectiveness of your current business premises. If you choose to renew your lease, you need to understand the type of lease you have in terms of whether it has security of tenure, so a protected lease. Finally, when renewing your commercial lease, you may wish to consider, for example, a new rent price and the condition of your premises.

If you need help understanding what to look out for when renewing your commercial lease in the UK, 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. Call us today on 0808 196 8584 or visit our membership page.

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