You’ve found business premises that suit your needs, the rental cost seems affordable, so it’s natural to want to get the lease agreement signed to secure the property. But wait a minute. You are about to enter into a detailed legal agreement with implications that can stretch years into the future.
How can you be sure that the terms of the lease are fair or that you are getting the best deal or indeed that it matches your business needs?
Lease agreements for commercial property are a specialist area – even for lawyers. Agreements can be lengthy and detailed, and the wording of some clauses can be loaded with implications that a layperson and sometime a solicitor might not pick up on.
If you choose to proceed without taking professional advice you are taking a chance. Your landlord is highly likely to have a specialist advisor and will almost certainly have more experience in commercial property leases than you do. This can put you at a major disadvantage.
When you sign a lease, the terms are legally binding. The consequences may only become apparent later. By this time, it’s too late and your landlord holds all the cards.
The Risks
Before taking a lease consider your total property overheads including rents, insurance rates and service charges. They will all need paying on time.
A delay could mean prompt enforcement action by the landlord and the payment of interest and other fees. Don’t bury your head. If you think you might experience cash flow problems, it is better to warn the landlord first. They are likely to be more sympathetic to an alternative payment plan than being presenting with a fait accompli, after the rent has become due.
Consider where you might be in the hierarchy of ownership. It is not uncommon for one lettable unit to have several layers of landlords and tenants. This matters where applications for say disposal or alterations are concerned as the consent of the owners of each superior interest will be required, which can be both costly and very very slow.
Bear in mind that unless you create specific exclusions any modest alterations will probably require consent. And be aware of the physical extent of your repairing and decorating obligations and that a covenant to keep in repair without other wording may require you to ‘put’ the property into repair first.
If you have negotiated an option to break, do you really need this? The chances are that the rent you pay will reflect this benefit.
Above all do expect that legal drafting and interpretation will often give rise to a different result from what you may consider to be common sense.
Sadly we have seen businesses that didn’t get the right advice before they signed the lease and they have ended up with the millstone of a lease they don’t want or cannot afford and sometimes no premises at all.
The Opportunities
So far, we’ve highlighted the major risks of not getting professional advice. There are also opportunities to achieve a better outcome when you engage a commercial property agent to help you.
What Rent Should You be Paying?
Would you know what rents businesses are paying for similar premises? A commercial property agent that understands the local market will know what current rental values are and will also have an insight into the market trends.
This knowledge can help you in two ways. First, it helps ensure that the initial rent is fair; second, it will alert you to the risks of your rent increasing during the term. It may be possible to mitigate this risk through negotiation before you sign. You might also be able to negotiate a rent-free period or other incentive.
Could You Negotiate Better Terms?
There may be more scope to influence the terms in your lease than you realise. It could be that your landlord is presenting heads of terms expecting a negotiation. It’s clearly better to have somebody experienced in lease negotiations acting for you.
The potential to negotiate better terms can also apply if you are renewing your lease or considering exercising a break clause. Maybe you didn’t get the best advice when you originally signed or maybe market conditions have changed – a break clause is a good renegotiation opportunity.
Where to Get Advice
Surveyors are practical property advisers and therefore provide a very different service from solicitors. Neither should be considered as substitute for the other. A commercial property agent such as Hicks Baker understands the law and the local market. As well as being trained and regulated we are experienced at negotiating leases, we can help you to achieve a better outcome and be fully informed about the obligations and risks you are taking on. View our case study here, whereby we marketed a retail unit, Green Park, and secured a new tenant for the owners.
For more information about commercial property acquisition and relocation, contact us today on 0118 959 6144 or email info@hicksbaker.co.uk.
