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Leasing Commercial Properties – Checklist

Date Added 06.03.24

Are you thinking of leasing a new commercial property? Or even upsizing to bigger commercial premises? or looking at leasing commercial properties in general.

If the answer is yes, there are some key factors to consider when negotiating the lease terms. To assist business owners Tollers Commercial Property team has set out below a guide to facilitate you through the process.

What exactly does your business need in terms of premises

In the first instance, you will need to consider your business and an appropriate property to house your operations. Do you need office space, warehouse space, large vehicle access or access to external areas for loading and unloading stock? Will you need additional or specialist storage space? These are in addition to the classic factors of location, cost and time – in terms of how soon do you want to take occupation of the property.

The first port of call is often to speak to an agent who can help you locate something suitable.

Before taking a new lease, you may need to consider your current lease:

  • Does your current lease include any assignment provisions, which allow you to assign, sublet or share occupation? These could be relevant if you have a long lease that you are considering selling or transferring in order to relocate;
  • Do you have dilapidations that need fixing before the end of the lease? Is there a schedule of conditions that need to be reviewed?
  • Does your lease contain a break clause that can be utilised?
  • Are your service charges or ground rent payments paid up to date? Do you have any arrears?

If you have any questions or concerns relating to your current lease, it is always best to get the advice of a solicitor before taking any action to ensure these options are exercised in the correct manner.

Once the above has been settled, you will need to consider the following in regard to any new property.

Property space:

You should consider if you wish to lease the whole or part of a property. It is important to distinguish between the two. If leasing part of a property, a plan will be needed to identify the relevant area. Considerations need to be given to any rights that you may require over the landlord’s remaining property, for example, a right of way or a right to park.

Do you want to take an internal-only lease, where the building itself is maintained by the Landlord? Or are you comfortable taking on responsibility for the whole building, which may include a responsibility to repair the structural parts (walls, roof, etc.).

The Lease should define exactly what parts of the property you are taking and what your responsibilities are; examples of what can be excluded/included could be;

  • The inner surfaces of all structural walls bounding the premises;
  • All internal non-structural walls within the premises;
  • The surfaces of any load-bearing walls within the premises;
  • All flooring and raised floors down to the floor screed, but excluding any part of the structure below;
  • All ceilings and suspended ceilings up to but excluding the structural slab above;
  • All doors and windows (care should be taken here especially in office premises of a floor in a building many floors up where there is an inability to access these areas to ascertain their state of repair);
  • The shop front and facia.

You should consider whether you are willing to be responsible for any or all of these parts of the property before entering into a lease.

Length of the lease:

This is a key negotiation point – if this is a new venture, you may wish to take a shorter lease and look to extend at a later date, as this can provide further flexibility with the ability to end the lease if needed. Alternatively, if you are looking for security and stability, you may wish to consider a lease for a longer term (such as the Guinness Factory’s famous 999-year lease) with provisions that will enable you to grow and develop alongside your business.

One element to consider alongside the length of the lease is the inclusion of security of tenure provisions under the Landlord and Tenant Act 1954. Is the Landlord willing to grant the lease on these terms which include a right to remain in the property after the end of the lease? If security of tenure is excluded, you will not have any right to remain in the property and the landlord does not have to grant you a new lease at the end of the term. This is a key part of the lease negotiations and should be discussed at an early stage.

Annual rent and costs:

One of the discussions that will be at the forefront of your decision-making is cost. In many commercial leases, there are additional costs including service charges, insurance, rent, utility costs, and even rent review provisions (often an upward-only rent review after a certain period) which could mean that in the future your annual rent would increase.

Another thing to consider when looking for a property is if the Landlord has opted to tax, because if they have the rent within the lease will be subject to VAT and which has implications for cash flow and your business tax accounts.

A further cost that any business should be aware of is property business rates. This is a local tax paid to the local council by occupiers of all non-domestic and business properties and which is the business equivalent of council tax.

Another is the service charge, which is effectively a maintenance charge for the building or estate that the property is based on. This could be for the upkeep of roads and pathways or even cutting grassed areas, and sometimes insurance is included within these costs. The service charge could be split between all of the units on a site or just those that are let. You will need to try and understand how much this could cost you and how often the service charges will be due.

You may wish to ask if the Landlord is willing to provide a rent-free period, which you could use to fit out the unit ready for occupation. This is often agreed upon in new leases, particularly for longer-term leases, as an incentive to the tenant.

Additional costs could also come in the form of security such as:

  • Rent deposit – it is typical for a landlord to ask for a deposit of 3 – 6 months’ rent;
  • Guarantors – This is an individual or a company that can be a guarantor in case you/your company cannot continue to pay the rent or additional payments, the guarantor would then be liable for these costs.

Use:

Some properties have restrictions on what they can be used for, for example, they can only be used as a shop or offices. You will need to check that the property you are interested in has the appropriate planning permission or if you will need to make a planning application (with the landlord’s consent) for a change of use in order to use the property for a different purpose.

Furthermore, you should consider any ancillary uses that may be required, such as the use of any parts of the premises for storage and any specialist/specific staff facilities (in the case of retail, restaurant,  warehouse leases or offices). Otherwise, it will not be implied that the landlord has consented to them and that the premises may be used for this purpose.

In addition to stating the permitted use which the landlord has authorised for the premises, commercial leases often set out a list of prohibitions such as:

  • It may be forbidden to use the premises for residential purposes;
  • To keep animals on the premises;
  • To use the premises as a charity shop or discount store;
  • To use the premises for the sale of alcohol;
  • To use the premises as a betting shop.

Again, care must be taken that none of these restrictions interferes with or prohibits your intended use of the premises.

Depending on the location there could be some instances noted under the lease when the premises may be closed or must be opened – these are known as ‘keep open’ covenants and are common in commercial districts or shopping centres.

Decoration and Repairs:

With all property in England and Wales the Caveat emptor (let the buyer beware) principle prevails. You should always ensure you are comfortable with your repairing obligations before committing to a lease. For example, if the property is in disrepair at the outset, will you be expected to carry out repairs and return the property in “good repair and condition” at the end of the lease? With a survey and schedule of condition in place, you could potentially look to reduce your liability to decorate and repair, especially at the end of the lease – this is a way of recording the condition at the start of the lease, in order to limit the decoration and repair obligations and would mean you would not have to return the property at the end of the lease in a better condition than when the lease was granted to you.

Alterations:

You will need to discuss with the landlord if you have any major plans on how you will use the property, if you would like to make any alterations to the property and any planning permissions that may be required. Although some minor internal alterations can often be carried out without consent, most alterations will usually require the Landlord’s consent, and structural and external works may be prohibited. If you know you shall need to do works on completion of the lease you may wish to consider agreeing a licence for alterations alongside the lease, to ensure you do not breach your lease by carrying out unauthorised works.

Alienation/ Options to Vacate:

Whilst you are considering entering into a lease you should also consider how to get out of it. As they say “The best laid plans can go awry…” If your business plans change you will need to look at a potential get-out clause, this could include:

  • Assignment (i.e. selling or transferring the lease to someone else);
  • Subletting;
  • Sharing occupation.

Your options may be limited to some or none of the above, depending on the agreements with the landlord. Some options may take longer to instigate and, in some instances, you shall still be liable under the terms of the lease.

Responsibilities:

When taking on a commercial property, you will need to be aware of the liabilities upon a tenant to create a health and safety risk assessment in the workplace and act to remove any hazards.  You will normally be responsible for:

  • Fire safety;
  • Safety of electrical equipment;
  • Gas safety;
  • Managing asbestos.

All of the points above need careful consideration and negotiation before you take on a new lease.

Talk to Tollers

If you are considering leasing commercial properties for business purposes or looking to end your current lease… talk to Tollers on 01604 258558, our Commercial Property team is here to guide you through the process from the initial negotiations right through to picking up the keys to your new property.

Find out more about the services our Commercial Property team can assist you here.

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