Five things to look out for in a commercial property lease
Entering into a commercial property lease is a weighty financial commitment, and so ensuring you understand all aspects of your obligations is of vital importance.
Complications can occur if you do not know what to look for in the lease, if you do not understand certain parts of it, and you do not hire a chartered surveyor to translate potential risks to you. Your RICS surveyor will be able to answer any questions you have, but in the meantime, here are five things that you should look out for if you are serious about signing a commercial property lease:
Understanding the lease terminology
Use the expertise of your chartered surveyor and lawyer to make certain that you fully grasp the terminology within the lease. Doing this will reduce the risk of any legal surprises from the lease and allow you to protect yourself if the Landlord attempts to break the terms in any way.
The length of the lease can vary depending on the property, but commercial leases typically range from five to 10 years. However, some can have a break clause inserted, which allows businesses to take a break to evaluate certain decisions such as relocation, upsizing or downsizing, and more. However, stamp duty is payable for the length of your tenancy regardless of whether you take a break, and so you should take that into account when signing the lease.
Is the lease realistic to your business?
Prior to signing the lease agreement, you should take a serious look into your company’s finances and assess whether projections of growth are realistic. You need to be confident that your business will be able to generate enough to pay the rent for the full length of the lease, but this can work both ways; your company may grow at a faster rate than you were expecting for example, and the premises may no longer work for you. A short-term lease with renewal options may be preferable if your initial projections of growth are incorrect.
Your obligations as a tenant
Most commercial leases tend to favour the landlord, so make sure you work out what you will and will not be responsible for in terms of maintenance and repairs. For example, if you have to make any alterations or repairs, you need to ensure you have capital set aside to cover this, and you should check the end-of-lease requirements as well to see if you will be liable for any replacements or refurbishments before you leave.
Utilities and taxes
In some cases, the Landlord will pay for any utilities that are not metered and then bill you accordingly or you will have to pay. Although reading the lease in detail can be time-consuming if not confusing at times, it can save you from incurring future charges from utility providers and the council. Ensure that you are fully aware of what utilities and taxes you are directly paying and the providers so that you can have access to the accounts to complete the payments.
Written by: John Padgett on Thursday 27/08/2015