Seven negotiating points for tenants taking new commercial leases

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Nick Macintyre

Landlords and tenants have different priorities. The landlord wants a secure income stream and to get the property back in good condition. The tenant wants to run its business without interference, to control costs where possible and to have flexibility if its needs change. A well-negotiated lease will find a balance between these different priorities.

While there are many possible negotiation points, here are seven key ones to remember:-

  1. Rent-free periods
    Landlords will often agree to a rent-free period at the start of the lease to encourage the tenant to take the lease. This could give you time to get established in new premises, particularly if you need to spend money on fitting out.
  1. Repairing the property
    The usual starting point is that the tenant must put and keep the property in good repair, so you would have to maintain it and repair any damage unless it was covered by the landlord’s insurance. If the property is not in good condition or you are taking a lease for a short period, you could try to limit your duty to keeping it in no worse state than as shown in a schedule of condition agreed with the landlord, with photographs and written details.
  1. Rights to alter the property
    You should make sure you have whatever rights you need to alter the property. The lease will usually forbid structural alterations, but you should ask to be allowed to make internal, nonstructural alterations. You may need to get the approval of the landlord, although they may accept that approval is not needed if you tell the landlord.
  1. Rights to deal with the lease
    You will want as much flexibility as possible if you no longer need the property. Most leases allow the tenant to assign the lease to another business or to sub-let, but only with approval of the landlord. The landlord must act reasonably but can require conditions for giving approval. You should try to limit these to you being up-to-date with the rent, and the new tenant being financially strong enough to take on the lease obligations. You may need to enter into a guarantee agreement so that if the new tenant does not meet the lease obligations you will do so.
  1. Break clauses
    Your lease will be granted for a fixed period and you will not be able to end it early unless there is a break clause. This could be a one-off break, on a fixed date; or a rolling break, with flexibility as to when it is exercised. The landlord may try to impose conditions for the break to be valid, such as complying with all your obligations up to the break date. These should be limited to paying any rent due and leaving the property unoccupied.
  1. Obligations on lease expiry
    The landlord will want you to leave the property so it can easily be re-let. If you have made any alterations, the landlord may require you to remove them. It is worth negotiating this, as you may be able to leave some things in place.
  1. Security of tenure
    The Landlord and Tenant Act 1954 gives business tenants the right to a new lease, when their lease comes to an end, or compensation if the landlord, regains possession for a reason which is not the tenant’s fault. Landlords often try to exclude this right.

Whether you are buying or selling your property, we have an experienced team of professional conveyancers who have extensive local knowledge to deal with all aspects of Conveyancing to assist you. You may be stepping on to the ladder to buy your first home, or selling to move to a bigger property with your expanding family. Whatever your situation, we are able to assist and make the transaction as smooth as possible.

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