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Top 10 Tips For Negotiating A Commercial Lease

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Now that you've found the ideal location for your company, all you have to do is sign the lease. Keep in mind that you are now entering the most important phase of renting a commercial space for your business, so try not to allow your excitement to get the better of you.

Purchasing or selling a commercial property can seem like a daunting task however our Commercial Lease expert team will help to make commercial property transactions hassle-free.

10 Tips For Negotiating A Commercial Lease

A commercial lease is an agreement that binds a landlord and a tenant business. Similar to a residential tenancy, a commercial lease grants a tenant the privilege of using a certain property for a set period in exchange for payment to the landlord.

Any firm that rents a commercial space has a substantial financial commitment, which might be intimidating if it's your first time. Additionally, it's simple to agree to terms and conditions that you don't agree with or just don't understand because business leases frequently contain a plethora of terms and conditions.

For instance, the lease may bind you to five years while you may be wanting to move up in three. Your business will be impacted if you are not able to negotiate properly and if you agree to pay too much rent. Here are the top 10 tips for a successful negotiation of a commercial lease:

1- Always Ask For A Rent-Free Period

Ask for a rent-free period because many property owners agree to this as an incentive. It's usually worthwhile to request a little term of free rent.

The major motivation for a landlord to offer rent-free time is to attract business tenants. Additionally, some landlords may provide a rent-free term to offset any expenses associated with repairs or modifications that you as the renter would otherwise be responsible for paying.

2- Consider The period For The Term

The period you agree to take the property for rent is known as the term. Our expert Solicitors at Deo Volente Solicitors suggest that you “Take some time to analyse how the present commercial lease term matches your company's future growth objectives”.

Both short-term and long-term leases have advantages and disadvantages. For instance, if your company is just getting started, it is a good idea for you to think about a shorter-term lease since it allows your company to relocate and grow considering the goals and objectivity of your business organization.

A long-term lease is a preferable choice, though, if you are a large firm with a larger workforce and want long-term stability from the property. But keep in mind the lesser the duration you will likely have leasing flexibility.

3- Avoid Mentioning Your Name As A Lessee

It may sound silly, but if you put your name down as a lessee, you could end up with a lot of personal debt. Ideally, you should sign the lease in the name of a company other than your own.

Because the company is legally considered a separate "legal entity," it is their responsibility to pay the lease unless they sign it on your behalf. It also means that if the company can't pay the rent, the lesser will assume the debt for you.

But not all owners agree, especially if the company has a limited financial history. In this case, an experienced attorney can help broker consensus to ensure that your name is not on the lease.

Contact one of our commercial property solicitors on tel:01234350244 for help in negotiating a commercial lease.

4- Avoid Personal Guarantees

In the case of a lease of a limited company, the owner can demand personal guarantees from the company's board members. This is contrary to what you, the owners, are attempting to accomplish by using a limited liability corporation to conduct business.

If the landlord wants security and requires a personal guarantee, it is best to reach an agreement with the help of a lawyer. The landlord can take out rent insurance (usually three months' rent), which is paid back to the employer at the end of the rental period or by agreement as an advance payment.

5- Negotiate The Terms Of The Repair

A "full repairing lease" entails your responsibility for all exterior and interior property repairs which you are going to take on rent. The building itself as well as any renovations are included. You should ideally just be responsible for interior maintenance as a renter.

The building's general upkeep should be under the landlord's purview. A "complete repairing" requirement may also call for the tenant to improve upon the condition of the property from when the lease first began. Negotiate a repair clause that limits the owner from returning the property in the same state as when the lease was signed.

A "schedule of condition," which is a record of the condition of the property as of the start of the lease, might be used to substantiate this.

If the lease is exceptionally long, it could be worthwhile to have a building surveyor check the structure to estimate potential repair needs. If any work needs to be done you may ask the owner to get it done before the handover of the building.

6-Ensure That There Is A Break Clause

One of the key elements of a lease is the "Break clause". This provision gives you the right to end the tenancy early by giving the landlord an agreed notice period.

This is a useful provision because it gives you the option to end the lease. Economic factors and personal circumstances can affect your business, so if you want to move or things don't go to plan, you'll have the confidence to end your lease.

Break clauses can be written so that only the tenant can implement them, providing security for the duration of the lease. In the case that your company leaves the property, they may also be utilised to give flexibility and terminate a lengthy lease.

7- Decide Security Of Tenure

According to the Landlord and Tenant Act of 1954, the tenant enjoys "security of tenure" by default under a commercial lease. Security of tenure implies that as the tenant, you have the freedom to use the space as long as the lease is in effect as well as the option to extend it after the current term.

This gives you "first dibs" on the property when it is up for renewal. Only leases longer than seven years are eligible for the security of tenure; nevertheless, some landlords may urge you to choose not to have it, particularly if the area is undergoing re-development.

It is essential to get legal help if you are being requested to sign a business lease that is not covered by the landlord and tenant legislation. Before deciding to give up these rights, a licenced and qualified attorney will make sure you completely understand the implications.

8- Look Into A Subletting Clause

You could think about subleasing a portion of the space at the beginning of the lease or as your company expands to make some extra money or lower the rent. This is specifically true if you sign a lease for a home that is bigger than you need.

This subletting clause is crucial to maintain flexibility, mainly if your company works in a volatile sector of the market. This can be your company's best alternative if your landlord won't accept a break clause.

9- Avoid Paying The Legal Costs Of The Landlord

You are not responsible for the landlord's legal costs! This is not a standard practice. Where feasible, both parties should pay for their legal bills.

Before rejecting this outright, if the landlord claims that this is the case, take into account how big these expenditures may be in comparison to the total cost of the lease for the full term. Keep in mind that you may negotiate every aspect of the lease.

To assist your business to achieve a favourable commercial lease, it's essential to retain the services of an experienced commercial property lawyer. Contact one of our commercial property solicitors at Deo Volente Solicitors on tel:01234350244 for help in negotiating a commercial lease.

10- Always Seek Legal Advice For Commercial Leases

Securing a profitable business lease is a difficult, convoluted process that will include a lot of discussions and negotiations. An experienced lawyer proves to be very helpful in this situation.

To prevent any interruptions that an unfavourable commercial lease may have on your business, it is advised that you have a lawyer analyse the lease before going to finalise the lease.

The lease will be in line with your company's requirements if you hire a lawyer at the outset of the negotiation process. Furthermore, you will at least feel more at rest knowing that you have a great business leasing agreement, even if the lease is reasonable.

If you’re looking to take out a commercial lease, or are concerned about your company’s existing lease, please don’t hesitate to visit our commercial leases page or contact one of our commercial property solicitors at tel:01234350244.

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DV Solicitors

DV Solicitors is a multi-disciplined law firm delivering expert counsel to all its clients, whether they are businesses, entrepreneurs or individuals. We offer legal and strategic support, as well as personal reassurance and guidance and we strive to find the perfect solution to the challenges you face.
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By: DV Solicitors
Date: November 7, 2022

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