Leasing business premises25th April 2016 9:00 am Leave your thoughts
Most businesses at some point need a building to operate from, whether it’s an office, a workshop, or a factory. Whilst some are in a position to buy, many more occupy premises that they rent under the terms of a lease. Here, we look at some of the issues you should consider before committing to rent business premises.
Making the right choice
Good legal advice can pay dividends. Once you’ve found the premises you’re looking for, your solicitor will be able to research the important details. They will check a whole host of key points, including whether the landlord is legally able to grant a lease, whether you can use the building for your particular type of business, if you can make alterations to the premises, what you’ll be responsible for by way of maintenance and repair, any local planning initiatives that could affect you now and in the future, environmental risks including subsidence, the status of local roads, and the utilities supplied to the premises, to name but a few.
Terms of the lease
Leases are generally granted for a fixed period. It’s important from the outset to know what options might be available to you if, for whatever reason, you want to end the contract. Usually, a lease can only be terminated if the landlord agrees, generally at the time the lease is taken out, to what is called a ‘break clause’ which is an option to terminate a lease early.
If you want to give up the premises and no break clause exists, if a suitable replacement tenant can’t be found, you will remain liable for the rent and other obligations until the lease expires. If you do find another tenant, the landlord can charge you for the administrative work involved. So it’s important to get good advice, especially if yours is a fledgling business and you’re not sure if it will take off or grow quickly, you may want to ensure that you have exit options available to you.
Charges will apply
If you’re renting a part of a building, such as an office or workshop, you will generally have to pay a service charge to cover the maintenance and upkeep of the common parts of the building such as the reception area, and services such as cleaning, telephone and broadband. You’ll also be responsible for business rates, utilities and other cost such as insurance, professional fees, and any stamp duty payable. These will all need to be factored into the projected costs of running your business from new premises.
Most leases include rent reviews which allow the landlord to adjust the rent periodically. The terms applying will be set out in the lease, and will include the dates when reviews will take place, and the factors used in calculating the revised rent. The lease should also specify the period of notice that must be given before any increase is applied, and how disputes will be handled.
Getting the best deal – legal experience is essential
Good legal advice will ensure that you avoid the pitfalls and understand your obligations. Your solicitor will be able to help you negotiate a sound deal that includes where possible valuable features such as a rent-free period, longer periods between rent reviews, break clauses, legal costs to be paid by each party, and limitations on your repairing obligations. Using an experienced solicitor to negotiate the terms of your lease is essential. The terms of break clauses are strictly construed and getting them wrong could have disastrous consequences and leave you exposed to the possibility of not being able to end your lease early and having to pay rent and other outgoings beyond the break date. Securing a service charge cap to limit your exposure to repairing common parts and the structure of the building can also be essential.
Do not trust such matters to a solicitor who dabbles with commercial property, use an experienced solicitor with a proven track record. Mike Stone has over 30 years of experience in dealing with commercial leases with a variety of uses whether acting for landlord or tenant and is the first choice of many local property professionals not only for recommendations but also for their own business needs.
If you need help or advice on negotiating the best possible terms of a lease, whether you are a landlord or a tenant, call Mike on 01628 631051 or email him on firstname.lastname@example.org.
This post was written by Colemans Solicitors LLP