A lease term varies between leases, and it can be difficult for commercial tenants to decide whether a long or short-term lease is better when you enter a commercial agreement. However, it is a crucial decision as the wrong one can have inconveniencing consequences. In addition, a commercial lease is a significant legal responsibility as a commercial tenant, so you must select a term which suits your circumstances. This article will explain why commercial tenants in the UK might prefer a short lease term.
Commercial Leases
A commercial lease grants you the right to occupy your landlord’s property for your business premises. You occupy the premises for a specific business purpose they permit on their commercial premises, and in return, you pay your landlord rental payments. The terms and conditions of a commercial lease are in the commercial lease agreement, which is a legally binding contract between you and your commercial landlord. One of the terms in a commercial lease agreement is the term.
Short Lease Term
Short-term leases are very popular in commercial property leases nowadays. There are reasons why short lease terms are standard in commercial leases. We explore some more below.
Stamp Duty Costs
A likely reason why you, as a commercial tenant, may choose a short lease term for your commercial lease is that this comes with less stamp duty to pay. You calculate stamp duty by multiplying your rent’s cost by the years the commercial lease lasts. So, a short term generates less.
SMEs
If you run an SME as a commercial tenant and wish to enter a commercial lease to occupy a property for your business purposes, a short term may suit you. This is because SMEs have the potential to grow in their early years, so they may not want to stay in commercial premises for too long. In addition to physical growth, an SME may rely on market fluctuations, so it may wish to move geographical locations frequently.
A short term provides flexibility and means your business can move on sooner; it will reach the lease end in less time than a long-term commercial lease.
Minimal Budget
A commercial lease agreement is a legally binding contract between you and your landlord which includes terms with financial costs such as:
- rental clauses;
- service charges; and
- insurance premiums.
Therefore, if you are a commercial tenant with a low budget for your commercial premises, a short term may be a preference as, overall, you agree to a lower financial commitment than a commercial lease with a long term.
Reduced Stress
A short term lease may suit you as a commercial tenant as it may mean less stress for your tenancy. This is because, as the lease is for the short term, you are less likely to find yourself in a position where you must sublease or assign it. To sublease is to create another lease as the underlease to your lease, where third parties shall become your tenants and lease some of your commercial space. On the other hand, when you assign your lease, you transfer it to another third party.
Negotiating New Lease Terms
Commercial tenants prefer a short term as it will end sooner. When it does, you may wish to negotiate a new lease through a renewal. At this point, you can also negotiate new lease terms. You may want to suggest more beneficial ones to the original lease terms, such as:
- lower rent; and
- the inclusion of a break clause.
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Key Takeaways
When you enter a commercial lease, you must consider the length of time you wish to commit to it. This is how long you will remain in the property and adhere to the terms and conditions of your lease agreement. You will want to choose a term which suits your business needs. There are reasons you may select a short term. This may be because you have a limited business budget to commit to the costs involved in a commercial lease. Alternatively, this may be because you require flexibility to change your commercial premises, such as if you are a growing SME.
If you need help understanding the terms of your commercial lease 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
What is a lease term?
A lease term is when you have to occupy your commercial premises as set out in the commercial lease agreement.
Why might UK commercial tenants prefer a short lease term?
Commercial tenants like you may prefer a short lease term because they run an SME and are likely to grow shortly and, therefore, wish to move to a different commercial lease which suits their needs.
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