Ten Tips for commercial tenants negotiating a new lease
If you rent property for your business and your lease is up for renewal then you maybe in a position to improve on your current deal. Head of property Law at DBS, Abdul Zaheed has ten tips for lease holders to keep in mind when negotiating new terms.
Ensure the rent agreed is the right market rent or even below. Don’t forget it’s a tenant’s market after all! Stamp Duty Land Tax may be payable on the rent, so check this whilst still in negotiations with the Landlord on www.hmrc.gov.uk website.
In the current climate it is becoming increasingly usual for rent free periods to be granted by the Landlord. Try to negotiate this from the outset.
Think hard about how long you would like a lease for. As a long lease may attract a wider audience if you sell your business but this also means more burden in terms of rent, business rates and complying with Tenant’s obligations under the lease.
Ensure Sections 24 – 28 of the Landlord and Tenant Act 1954 are not excluded from the lease as this will affect any goodwill you have in the business. The Landlord and Tenant Act 1954 gives a Tenant the right to have a renewable lease on the same terms as the original lease that was granted. If section 24-28 are excluded the Tenant does not have this right. This, for example, will affect a restaurant more than perhaps a call centre where location is not so fundamental.
Negotiate a break clause wherever possible to ensure if your business venture is not successful you are able to limit your liability under the lease and return the property to the Landlord on the expiry of your notice period in the break clause.
Try to limit your repair obligations even though most leases are full repairing leases. Ensure that the Tenant’s obligations do not oblige the Tenant from putting the property in a better state of repair than it is in when at the start of the lease.
If there are any obvious repairs/ fit out works that need to be done prior to the commencement of the lease try to negotiate that the Landlord will do these at his own cost but at the reasonable satisfaction of the Tenant – to a spec and design previously approved by the Tenant.
Landlords are keen to have upwards only rent reviews as often as possible. Every effort should be made to refrain from rent reviews for leases of up to say 5 years. Rent reviews should be spaced out as much as possible in leases of more than five years.
Ensure the lease allows the Tenant to assign or underlet with as minimum conditions as possible. As more conditions will allow the Landlord to impose on any incoming tenant will make it difficult for the Tenant to sell or underlease the premises to a third party.
If before the end of the lease the Tenant has no intention to sell the lease or renew it, the Tenant must ensure compliance with all repair obligations of the lease. Failure to do this can result in an expensive dilapidations claim against the Tenant.
You can talk to a property expert at DBS Law about any matter concerning commercial or domestic transactions. Call 0844 27 70 800 any time or email firstname.lastname@example.org