Many assume that leases of business or commercial properties are merely a matter of ‘rolling out’ standard paperwork, but nothing could be further from the reality. Every business has different needs, and every property is different. Leases need to reflect the commercial and practical agreement made between landlord and tenant, and in agreeing a final form of lease we seek to mitigate the risks facing our clients’ business going forwards. The most common issues on which we advise are:
- Does the landlord have the right to grant the lease to you? Is there any other person or body from whom consent to the lease is required before the landlord can enter into it with you?
- Does the lease cover all areas of the building to which you need access? It is all very well having a lease of an office in a block, but you will also need rights of access to it over the rest of the building (and maybe to shared facilities). Appropriate plans and rights are necessary in the lease.
- Is the length of lease appropriate for your business? Longer leases often include more responsibility for repairs and may need to be registered at the Land Registry. It may be worth considering a break clause in the lease, allowing you opportunity, usually at set dates, to get out of the lease on notice to the landlord. This can be critical if you are a new business that may expand out of, or no longer require, the property. A business lease cannot otherwise be ended on notice, like a residential lease or agreement, during the length of the lease granted.
- Can the landlord increase the rent during the length of the lease? If so, on what basis? Is there a service charge and what does it cover? Can that service charge be capped to protect you from unexpected large bills for works to communal areas?
- Do you require the right to remain in the property at the end of the initial length/term of the lease?
The law states that a landlord must give a tenant a new lease on the same terms at the end of a lease, subject to a review of the rent. However, the landlord can remove this right by serving notice on you to that effect at the start of the lease. If this is done you will not have any right to renew the lease and the landlord can insist you leave the premises at the end of the lease without compensation even if your business is thriving and you need to remain in the property.
- Do you have the right to use the property for your business? If a property is designated by planning for use as offices, your lease for a restaurant business may be worthless to you unless you can get a change of use from the planning authority at your own expense. If you need a change of use application this should be dealt with before you enter into the lease.
- Do you want to take the lease in your name , or through a company?
- Are you required or able to offer any rent deposit or guarantor for the payment of the rent ?
- Are you required to pay VAT on the rent? If not, can the landlord charge VAT at a later date, effectively increasing your rent by 20%?
- Is Stamp Duty Land Tax payable on the lease? There may be ways of mitigating Stamp Duty Land Tax by having a shorter lease with an option to renew it at the end of the lease (rather than a longer lease with a break clause to end it during the lease term).
- Sharing the space – are you able to sub-let or share the property leased to you and on what conditions? Can you sell on or transfer the lease if you no longer require it, and what conditions have to be met to be able to do this if it is allowed?
- Is a lease with the tenant liable to repair all of the property appropriate? Should you in fact have repairing obligations limited to the current state of repair of the property by reference to a schedule of condition?
- Do you need to make alterations to the building? If so, it is often easier to agree these with the landlord when negotiating the lease. Do you need early access or a rent free period in which to carry out any such works?
- Do you have the right to erect appropriate signage for the business? Do you have rights to park at the property?