Business Leasing Pitfalls: 5 Things For Tenants To Watch Out For
It’s commonplace for small businesses to lease commercial premises as this enables companies to grow and aim to become more profitable. However, whether it’s leasing a retail shop on a high-street or leasing a large industrial unit, the approach to leasing should always be cautious because the lease ultimately dictates what you can and can’t do during the rental period, and may have significant financial implications on exit.
It’s important to ensure any commercial property lease you sign is fair, clearly laid out and includes all the relevant protection terms for you as a prospective tenant.
Make sure you speak with a commercial property solicitor who understands business leasing before signing any lease – a specialist solicitor will ensure you fully understand the terms, your rights as a tenant, your responsibilities as a tenant, and that you’re aware of any critical clauses such as those relating to ending the lease agreement early and rental reviews, for example.
Five Must-Dos Of Business Leasing
- Understand The Lease Terms
Lease agreements use complex legal wording and it can be easy to miss key clauses such as rent reviews, service charges and break clauses. However, clauses like these have a massive impact on what you expect to pay versus any sudden increases – ask your solicitor to check the lease and explain it to you in detail. - Understand Repairing Duties
Within a lease, there is always an FRI (full repairing and insuring) clause that details what the tenant is responsible for when it comes to the upkeep of the commercial premises. By understanding exactly what you’re responsible for, you can avoid any unexpected high costs during the lease. It’s always worth negotiating for favourable terms and may be possible to negotiate for a schedule of condition that limits your repair obligations based on the condition of the property at the start of the lease. - Flexibility To Assign Or Sublet
As your business grows, your needs will likely change – and this might include wanting to assign the lease to a different business or to sublet part of the business premises. The majority of business leases include restrictions on assignment and subletting, so make sure the terms of your lease provide you with this flexibility to ensure you’re protected if your business situation changes and you want to downsize or move premises or need an exit strategy in the future. Ask your solicitor about potential continuing liabilities after the Lease ends should you sell. - Include A Break Clause
Break clauses give a tenant the right to end the lease early, usually after a set period. It may be sensible to negotiate to include a break clause in your business lease agreement and check that the associated conditions are favourable to you and fully understood. - Clarify The Rent Review Clause
A rent review clause allows a landlord to increase the rent at set intervals. It’s important to check the terms of a rent review clause and to clarify how and when the rent review is calculated. Consider negotiating for fixed rent increases or to put a cap in place for the amount the rent can be raised by.
Undertaking a commercial property lease is a big financial commitment for a small business. It’s important to understand the key lease terms and to negotiate for terms that provide the necessary flexibility and protection for your company as it grows. Your commercial property solicitor will be able to check the terms and negotiate the right conditions to ensure your lease works for you.
Helping You With Your Business Lease
Our specialist legal team understand the complex legal jargon of commercial property leases as well as the importance of favourable terms within key clauses such as rent reviews, break clauses and service charges, and will help ensure your business is protected from day one with its lease.
By negotiating the terms of the lease, we will ensure your business lease provides you with the protection and flexibility your company needs as it grows.
To speak to us about your leasing needs, you can contact us at our Chorlton office on 0161 860 7123 or email chorlton@hlfberry.com or at our Failsworth office on 0161 681 4005 or email failsworth@hlfberry.com and we will be happy to help.
