Posted: Friday, 26 August 2011 @ 11:03
How to negotiate a Lease is one of the most frequent questions I get asked.
Before signing a Lease of business premises Tenants should always try and negotiate the best deal with a Landlord or their agent.
Listed below, in no particular order of importance, are the key things to ask for and check:
1. Get expert advice on the Rent
A Tenant should not just rely on the Landlord’s view on the market rent for the property. If in any doubt get your own surveyor to give a valuation
2. Service Charge Cap
Payments towards the Landlord’s costs of keeping the external, structural and common parts of a building/estate are the source of frequent disputes. The Tenant can avoid this and fix liability by agreeing an annual maximum Service Charge payment
3. Planning Use
Make sure the property has the right planning permission for the proposed use e.g. a retail shop is Use Class A1
4. Taxation
Ask the Landlord whether VAT is charged on the Rent.
The Landlord should be able to advise you on Business Rates but if not check the Valuation Office website for the rateable value and don’t forget to claim Small Business Rates relief from the Local Authority if you are entitled.
Check whether Stamp Duty is payable on the Rent. A rough calculation is to multiply the VAT inclusive Rent by the number of years in the Lease. Any amounts over and above £150,000 is payable at 1%. There is a calculator on HMRC to give the exact amount.
5. Break Clause
If agreeing to a longer Lease it would be prudent to agree a break clause in case the business grows and you need more space or alternatively want to downsize.
Once agreed the break clause should not contain onerous conditions.
If the Landlord will not agree a break clause then ensure you have the ability to assign the Lease to a 3rd party or sublet.
6. Will my Lease be protected?
Normally a Lease of commercial premises will have the benefit of security of tenure. This means that at the end of the Lease term the Tenant is automatically entitled to a renewal Lease unless the Landlord can prove to the Court certain conditions e.g. an intention to redevelop.
Many Landlord’s like to exclude this protection and so Tenant’s need to consider whether location is integral to the goodwill of the business before deciding to give this up.
7. Ask for a rent free period at the start of the Lease to cover any fitting out works required
8. Consent for Alterations and Signage
Most Leases prevent any alterations without the consent of the Landlord and the same goes for signage.
Send to the Landlord at an early stage plans and a specification of any works so approval is not a problem later on.
Remember some works/signage will also require planning permission and/or Building Regulation approval from the Council.
9. Would it help to pay Rent monthly rather than Quarterly to help with cash flow?
10. Do you need a Schedule of Condition?
If the premises are not new or in perfect condition then it is always a good idea to agree with the Landlord that a photographic Schedule of Condition be annexed to the Lease to evidence how the premises need to be handed back at the end of the Lease Term. This could avoid a costly dilapidations claim against the Tenant
11. How and when will the Rent be reviewed?
The most common method to review rent is to open market rent for the premises at the date of the review. From a Tenant’s perspective this would ideally be no more frequent than every 5 years.
The other methods are to increase rent in line with inflation (RPI) or based on turnover.
These clauses are usually heavily weighted in favour of the Landlord and should be scrutinised by the Tenant’s solicitor in detail as the Rent will invariably only be reviewed upwards or remain the same as before even in a market where the rental value of the premises has fallen.
12. Consider what other security the Landlord may require
If you want to put the Lease in the name of a new limited company with no trading history then the Landlord will most likely insist on extra security. This could be a rent deposit where a sum of money is lodged with the Landlord and/or a Director’s personal guarantee.
Always take professional advice before agreeing to any other security to ensure you are not giving more than is reasonable and you are aware of the risks.
13. Buildings Insurance
Check how much you will be asked to contribute towards the Landlord’s policy
14. Landlord’s legal costs
Don’t agree to pay them as it is not standard practice
15. Compliance with Legislation
It is up to the Landlord to provide copies of an Energy Performance Certificate and Asbestos Survey/management plan.
The Tenant will need to carry out a Fire Safety risk assessment
16. Instruct a Solicitor to negotiate Heads of Terms and the Lease
Many small and new business Tenant’s end up negotiating leases themselves, usually with a surveyor acting on behalf of the Landlord. This often puts a Tenant at a disadvantage as they are dealing with a professional who negotiates leases every day for a living. This is why we offer a fixed fee service to negotiate Heads of Terms and the new Lease for Tenant’s so that they can save money on business premises from day 1.
If you are a business considering taking on a new Lease of commercial premises or just renewing an existing arrangement please feel free to email any questions to steven.petty@business-lawfirm.co.uk
Steve Petty
Commercial Property Solicitor
01926 629 005
For free advice on this topic please call us on 0845 003 5639.
This blog is not intended to constitute legal advice, nor is it intended to be a complete and authoritative statement of the law, and what we say might be out of date by the time you read it. You should always seek legal advice to confirm whether or how any information in this article applies to your particular situation. We offer a
free telephone consultation to discuss your particular circumstances.