Top Ten Tips for Commercial Property Tenants

Taking a lease of commercial premises for the first time can be a daunting experience, with even short-term leases often running to over 40 pages. Below are our top ten tips for new tenants although it is a good idea to have any Heads of Terms looked at by a qualified surveyor or solicitor to ensure that onerous terms are dealt with before they make it into the draft lease!

Limited Company
If you are a sole trader, it may be a good time to form a limited company rather than take the lease in your own name.

VAT
If the Landlord has chosen to do so, VAT will be charged on the annual rent, service charge and other sums payable under the lease. Check this at the outset as it will also affect the amount of Stamp Duty Land Tax payable.

Rent Deposit
Landlords may ask for a rent deposit or other security, such as a guarantor, for the payment of the rent. Such deposits vary in amount from one to twelve months’ rent. If VAT is charged, this will be payable in addition, but you may not be able to claim it back immediately as a VAT invoice will only be issued by the landlord in the event of rent arrears. Be certain that you know who will hold the rent deposit, what happens to the interest and when the rent deposit will be repaid.

Service Charge
This variable charge covering services, insurance and shared costs can mean a lot of unexpected expense. In a multi-let building, try and agree a service charge cap to limit what you have to pay each year and allow you to budget.

Rent Free Period
If the premises are in disrepair or alterations are needed to make them suitable for your use, a rent free period may be agreed with the landlord before you start trading. Make sure it is clear whether this covers just the annual rent or service charge as well.

Repair
Most landlords will want you to agree to “keep” the premises in “full repair”. If the premises are in disrepair when you take the lease, you will have to bring them up to scratch at your own cost. This obligation can be reduced by agreeing to keep the premises in no better condition than they are in when the lease is granted (as evidenced by a photographic schedule of condition). Beware of landlords trying to recover hidden repair costs through the service charge.

Alterations
Think about what internal and external alterations you wish to carry out and make sure these are permitted by the lease. The installation of internal partitioning is usually allowed without express consent from the landlord but be mindful that most alterations will need to be reinstated at the end of the lease.

Break Clause
If you are taking a lease for a term of more than five years, consider whether you need a tenant only break clause in the lease to allow you to exit early. Beware of break clauses that contain onerous conditions before they can be exercised; the only condition that should be accepted is the payment of the annual rent to the break date.

Right to Renew
Commercial tenants have automatic statutory rights to renew their lease at the end of the term. Often landlords will seek to exclude these rights so make sure you understand what you are agreeing to give up.

Landlord’s Costs
Whilst you may be asked, do not agree to pay the landlord’s legal or surveying fees. Each party should be responsible for their own costs.

Should you require any further information in connection with taking a lease of commercial premises, please contact Dawn Scargill at dawn@legatuslaw.com or Siobhan Dexter at siobhan@legatuslaw.com or 0113 302 1330 / 020 787 32279.