If you want to run a business in the UK out of a property that someone else owns, you are going to need to sign a commercial lease.
This can be a daunting prospect for a business owner, especially one that is entering into this type of arrangement for the first time.
So, it’s worth fully taking the time to understand what you will be getting yourself into.
The last thing you want to do, is to unwittingly agree to a long lease in a property size that your business soon outgrows.
Similarly, you don’t want to find yourself responsible for all aspects of the property’s maintenance.
Therefore, it is important to be aware of all the major elements involved in a commercial lease.
Any good Lawyers in the UK with LegalVision will be able to guide you through the ins and outs of your particular contract.
However, to provide you with a base understanding of what you should expect, in this article we will outline some of the main things you will need to be aware of when it comes to signing a commercial lease in the UK.
What is a Commercial Lease?
First things first, it is worth outlining what exactly a commercial lease is.
Essentially, within England and Wales, a commercial lease is a contract between a tenant and a landlord. This lease allows a tenant to operate a business for a specific length of time, within a property that is privately owned by the landlord.
Just like with residential leases, commercial leases can comprise of a wide range of lease and tenancy types.
While all commercial leases are slightly different in their composition, they all stipulate the specific conditions, obligations, responsibilities and rights of both the tenant and the landlord, which forms the basis of the agreement.
What does a lease document contain?
Typically, a commercial lease contract would cover elements like:
- What types of business you can and can’t run out of the property
- The cost of rent and payment frequency
- How long the property can be rent
- Whether that timeframe is a fixed-term, or if it can be renewed
- If it can be renewed how that is done, and for how long would it apply
- Any service charges that may be applicable
Responsibilities of the Tenant
The commercial lease will also outline the specific rights you will have as a tenant, during the time you rent the property.
This may include things like whether you can decorate or refurbish the property in any way to better suit your business branding.
Similarly, the lease will also highlight the specific responsibilities the landlord imposes on you. This may include:
- Any significant damage you may have caused
- Considerations for workplace health and safety – e.g. electrical and fire safety items
- Property maintenance and repair (depending on the property type)
Responsibilities of the Landlord
As well as outlining the responsibilities of the tenant, the commercial lease should also specify the landlord’s responsibilities as well.
Typically, your landlord may be accountable for:
- Maintenance and repairs of the property’s communal areas
- Any electrical safety items they own that are within the property
- Fire safety
Other Inclusions within the lease
Your commercial lease will also contain necessary clauses demanded by law. These particular clauses will identify:
- The property address
- Landlord’s details
- Your details
- Length of the lease
- Other relevant parties e.g. a guarantor, that may warrant inclusion on the lease
These clauses will also specify any ‘premium’ that is being paid for the lease. This is distinct from your specified rent amount, and relates to any lump sum you might have agreed to pay the landlord to secure the lease.
Generally, this is only relevant for long-term leases that have a large value.
If you have agreed on a longer lease, there may also be a ‘break clause’ inserted into the contract. This will enable you, or the landlord, to end the lease on a particular date – which usually falls well before the lease’s original final end date.
You might want to add this clause, for example, if you foresee rapid growth for your business and may need to potentially relocate to bigger premises, or a different location, with more foot traffic.
Similarly, your landlord may want to insert it if they entertain thoughts of selling the property.
Different types of leases
Most commercial leases tend to be either ‘long form’ or ‘short form’.
More often than note ‘long form’ leases are used for high value lettings that have a more complex make up.
An example of a ‘long form’ lease might be one that covers a massive premises that will accommodate a large business with a high number of staff.
Typically, ‘short form’ leases are employed for less complicated leases that might involve renting out a property for a small sized company, or a particular unit in a business park or shopping centre.
In these circumstances, the lease is usually customized to the specific type of property – whether that is an office or retail space, or an industrial unit.
Length of leases
For all commercials leases, the length of the lease is something that must be negotiated.
When doing this, be mindful of what will happen at the end of the lease date.
Should the lease have a fixed end date, or be for a fixed period, you may want to negotiate an extension for another specific timeframe, assuming both parties are happy to do that, on the same lease terms.
Alternatively, you might want to negotiate an ‘automatic renewal’, which would essentially mean the lease would automatically kick in again, on the same terms, for the same period as the original lease.
In this situation neither you, nor your landlord, will be required to do anything.
Failing this, you can leave it open to negotiate a new lease with them at that time. Or you can vacate the premises to somewhere else if you want to, as per a customer base you have discovered via location mapping.
Similarly, the landlord can ask you to leave if they want you to as well.
A ‘periodic’ tenancy could also be activated. This is where the lease continues until such time as either you, or the landlord, decides to cease it.
During a periodic tenancy, landlords can increase the rent you are required to pay – although they will have to give you a certain amount of notice.
They may also amend other lease terms too. While this does give you much less certainty than a lease that runs for a specific time period. You do have more freedom to vacate the property should you wish to – so long as you give advanced warning to the landlord.
We hope this overview has given you a much clearer understanding of the contents of a commercial lease.
Before entering any commercial lease arrangement with a landlord, it is essential that you understand fully what you are getting yourself into, and what your rights and responsibilities are. As well as those of your landlord.
Ultimately, what you want from a commercial lease is the security of knowing that you can operate in the property under conditions that best suit your business.
Knowing what these conditions are, will make it easy for you to negotiate with the landlord what you need.
While doing this, it is important to understand that there are plenty of properties available to be leased for any given business.
So be sure you stick to your guns to find the best one, and commercial lease, for you.