Tips for Tenants when taking on a commercial property lease
1. Take legal advice
If you are taking a lease of a new property, there is no substitute for taking legal advice. Unless you are a very experienced tenant, there are many additional considerations that a lay person would not necessarily be aware of that may trip a tenant up – I have listed several of these below. I have often come across tenants who have failed to take legal advice and blindly signed up to a lease with detrimental consequences.
2. Insist on a Schedule of Condition
This is a series of photographs which is attached to the back of a lease and is evidence of the condition of the property at the time the lease was entered into. The Schedule can be prepared by the tenant themselves or, where the lease is for a longer term or a higher rent, this can be prepared by a surveyor on the tenant’s behalf. Having a Schedule limits a tenant’s financial liability, as at the end of the term of the lease, the tenant is only required to put the property into the condition it was in at the time the lease was entered into, as evidenced by the photos.
3. Be aware of your rights
Unless the lease states otherwise, a tenant of a commercial property automatically has the right to remain in the property beyond the expiry of the term of the lease. Even more importantly, a tenant also has the right to request a new lease from their landlord on similar terms, should they wish to. Whether the lease prevents such a right from being claimed is down to negotiation between the parties. Try to ensure that you retain this right if at all possible.
4. Try to limit any service charge payable
If your lease is subject to a service charge, try and insist on a ‘cap’ (or maximum level) of service charge being imposed. Without this, the service charge payable can go up or down, there is no guarantee that the service charge amount will remain at the approximate amount quoted by the landlord’s agent. Failing that, ask the landlord whether they expect any major expenditure to be incurred in the near future, which may increase the service charge, so as a minimum you can try to anticipate this.
5. Consider whether you need the ability to get out of your lease
A lease is a form of Contract signed by both landlord and tenant. Unless you have a way of getting out of the lease during the term, the tenant will remain liable for the payment of rent and performance of other obligations under the lease until expiry of the term of the lease. Therefore, check whether you have the ability to assign (transfer) or sublet your lease to a third party if required, and check any conditions attached to this. Better still, if you are a new start up company, try to insist on a tenant break clause being included so that if matters don’t go as well as planned, the company can exit the lease – be aware however that the inclusion of a break clause is likely to increase the rent payable under the lease.
If you would like more information on commerical leases or any aspect of commercial property please do not hesitate to contact me David Leviten.