Most businesses, whether start up or established, will need premises to operate from. But, it is usually only well-established firms who can afford to purchase freehold premises. This means that for the vast majority of Essex businesses we work with, the commercial lease route is inevitable. Trouble is, with most commercial leases running into at least 40 pages long, it’s not for the faint hearted (or inexperienced) without legal advice.
For any business the acquisition of a lease will be an expensive process and, for a start-up, one of the biggest single investments they’re likely to make. Negotiation of the Heads of Terms to include an agreed figure for the rent, an agreed length of the term of the lease and the date of any rent review as well as searches, stamp duty and land registry fees. Not forgetting the possibility of having to pay or contribute to the solicitor’s fees of one of the other parties in the transaction.
So, what should you bear in mind? And, just what are the most important things to know before signing a commercial lease?
Commercial Lease – The 5 Pitfalls to Avoid
It’s not uncommon for businesses to find themselves trapped in a rental agreement, or tied to a certain business type because a restrictive clause in the lease mandates what they can, and can’t sell.
That’s why it goes without saying that you should instruct a specialist solicitor. Take a DIY approach to commercial lease negotiation & acquisition and these 5 pitfalls are likely to come back to bite (and cost) your business down the line.
- Rent Reviews
The rent might be in line to increase during the term of the lease. Checking when the rent review takes place is the easy bit. But is the rent review a fair one? Or is it biased in favour of the landlord and likely to substantially increase the rental burden during what might be a period of several years?
- Break Clause
The lease might well allow the tenant to break the term if the business cannot afford operating from the premises. It is easy to check when the break clause is set to take place but invariably there will be several pre-requisites including a strict notice period. If you want to be able to effectively exercise the break clause it is important to understand exactly what must be done, and when, as set out in the lease.
- Tenancy Protection
Business tenants often invest heavily making improvements to commercial premises. The general law allows a fresh term of similar length and on similar terms when the initial term of the lease expires. But if this protection is excluded, investments that might have been made can be wasted.
What obligations of maintenance and repair are required of a tenant. To put and keep premises in good repair is very different from just keeping in good repair.
- Schedules of Obligation
Frequently obligations of both tenant and landlord are set out in a schedule at the back of the lease. In a recent case the tenant felt safe in the knowledge that the landlord had a schedule in the lease setting out his obligations in some detail. In fact, none of those obligations could be enforced. Simply because there was no mention of the schedule in the body of the lease.
These 5 Pitfalls are all capable of causing business tenants expense during the length of a commercial lease and damaging the future of the business. So, it’s vital that they are not ignored or overlooked.
If you are considering a new commercial lease or taking on the assignment of an existing lease give us a call. Our expert solicitors will meticulously check and report on all aspects giving you the confidence to allow your business to grow.
COMMERCIAL LEASE CONSULTATION
Interested to find out more? Look at our recommended reads –
Finding the right commercial premises. A simple guide from StartUpDonut >>
Pitfalls you need to avoid when getting new business premises. Helpful article from ByteStart >>
About TM Law – Specialist Commercial Lease Solicitors
Based in Hockley, Essex, TM Law is a small and dedicated solicitors. With many years’ experience, helping business owners and local individuals with matters of new commercial leases & existing commercial lease reassignment, compromise agreements, employment disputes, debt collection, commercial disputes and much more.
As a specialist commercial lease solicitor, TM Laws’ knowledge of the complexities of commercial lease clauses, and the process of searches in relation to environmental matters and planning matters is second to none. An approach which is proven to deliver local businesses peace of mind and confidence in the suitability of the lease they have undertaken.
For a personal service, practical advice and help navigating the maze of your commercial lease contact us today. We offer a fair, fixed fee service and we’re always happy to help.