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Questions to Ask Before Signing a Commercial Lease
Thinking of signing a commercial lease – a new one, or one that you will be taking over? Get answers to these questions before you take the cap off the pen.
How many years will the lease run? You will be committed to paying the rent for the whole of that time, so if the term is a long one make sure that your business is in a position to make that payment. If, on the other hand, the lease has only a short time to run, are you happy that you will be required to move out at the end of it, unless you have been able to strike a new deal with the landlord?
Security of Tenure
Commercial leases are renewed automatically unless the landlord or the tenant wants a different arrangement. In the normal course of events, the tenant has a right to receive a new lease similar to the previous one and at a reasonable rent. (Note that reasonable is not the same as unchanged.) That right is called security of tenure.
It is quite common, however, for a tenant to be asked to sign a lease in which the tenant’s automatic legal right to a new lease is waived. Not having the lease renewed is one thing, and the tenant will normally be able to get compensation; having to leave the premises without compensation because the right to a new lease was waived is something else again. Think very carefully about the circumstances if you are asked to waive your rights.
Permissions and Preventions
A lease will set out what the tenant may do and what the tenant is not permitted to do. These obligations have teeth; do something you should not do and the landlord may sue. Examine the permissions and preventions carefully and be sure you can comply with all of them.
Over time, premises need repair. A lease sets out what repairs will be done by the landlord and what repairs the tenant is required to do and to pay for. A repairs clause that looks innocent enough on paper can cost a great deal of money if major repairs are required and the tenant has agreed (however unwittingly) to foot the bill.
Businesses change over time and the nature of the physical premises they need also changes accordingly. Some leases will allow the tenant to make any changes they may deem necessary and some forbid any change whatsoever. What does this lease say? How well does it fit with the way you believe your business may evolve during the term of the lease?
Getting out before the end
As we stated above, businesses change over time and the premises that were ideal when you moved in may be a drag on your success before the term is up. Does the lease give you the right to do something about that? Here are some possibilities:
Do you have the right to transfer the lease to a new tenant who will pay the rent, leaving you free to find somewhere more suitable to your needs?
In a sublet, the tenant (you) remains responsible to the landlord for the rent, but a sub- tenant pays rent to you. Does the lease permit this?
A break clause sets out steps you have to go through in order to terminate the lease. There is likely to be a charge, but it will usually be less than the cost of continuing the lease that is no longer appropriate to your business needs. Will those steps be easy to fulfil? Because if you don’t do exactly what the lease says, you may still be stuck with the need to pay the rent.
All leases come to an end and the lease will set out exactly what is to happen. Make sure there are no obligations (like the time you are given to vacate the premises) that you will find difficult or impossible to comply with.
Signing any contract is a matter that may need assistance from experts in the field and a lease is no exception. If you have any doubts, call Lynn or Katie, Commercial Property Solicitors at Excello Law on 0845 257 9449 – we’re here to help.
Disclaimer: Nothing in the Legal Insights section and this blog is intended to provide legal or other professional advice and, if readers are interested, they should consider taking separate legal or other professional advice accordingly.
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