Guest post by Judith Long
Taking on a business lease can be one of the most significant financial commitments that your business will make. It is important for a tenant to be aware of the key provisions of its business lease so that it can check what the respective rights and obligations of the business and the landlord are and be aware of the procedures to follow in case there is a problem.
What’s in a Shop Lease?
The lease will normally include the following:
- Details of the premises.
- The term of the lease – this will usually be 3 or 5 years or a multiple thereof.
- Whether the lease is renewable at the end of the term.
- Whether lease can be assigned during the term together with any conditions.
- Whether part of the premises can be sublet.
- The amount of the rent, including details of any rent reviews.
- The amount and the terms of any rent deposit.
- Whether a personal guarantee is required.
- Details of any works that will be the landlord’s responsibility during the tenancy.
- Details of any service or other charges that may be payable to the landlord during the tenancy.
- Details of any works that will be the tenant’s responsibility during the tenancy.
- Details of remedial work that will be required at the termination of the lease.
Things to Consider when Leasing a Shop
The matters set out below are the sort of things you may need to think carefully about and to negotiate with the landlord before agreeing to the lease.
a. Check the length of the lease. The tenant should know when the term will end and whether it can be terminated earlier by either party. The right to terminate early is usually referred to as a break clause. Tenant break clauses are commonly linked to rent reviews so that, if the rent is likely to be unacceptable to the tenant, it can terminate the lease and limit its financial responsibilities.
b. Check the position on security of tenure. Business tenants generally have the right to renew their lease at the end of the contractual term (subject to certain exceptions). Note, however, that the lease can be contracted out of the security of tenure provisions, in which case there will be no right of renewal at the end of the term and the property must be vacated.
c. If the lease provides for a rent review, consider whether this should be a simple inflation-linked increase or linked to comparable premises in the open market.
d. Are you required to give a rent deposit or a personal guarantee? If so, think carefully about the impact on cash flow and personal liability as a guarantor. Many start-up businesses prefer to take a lease in the name of a company with a cash rent deposit.
e. If giving a rent deposit, consider whether it should be released if you prove to be a good tenant and your accounts show that your business is on a sound footing.
f. The lease is likely to contain a number of restrictions in connection with assignment and sub-letting. These provisions should be carefully considered.
g. If you intend to carry out work to the premises, it is best to agree these at the outset and document them as part of the initial deal or you may need to obtain landlord’s permission incurring additional costs and delays.
h. Even if the premises aren’t in a good state of repair at the beginning of the lease, the repair clause might require you to hand them back to the landlord in a good state of repair. Therefore it is wise to ask your landlord for your repairing obligations to be limited to the current state of the premises recorded in a detailed Schedule of Condition supported by photographs.
i. Find out what your business rates liability will be. Check whether the premises are separately rated.
j. If the premises are part of a larger building, check the service charge accounts for at least the previous 3 years and try to negotiate a cap on the service charge for at least part of the term.
k. Check whether the premises have their own meters and mains supplies or are these located in a part of the building you can’t reach?
l. Would you require parking facilities or 24-hour access?
Please note that the above are just some of the matters which you need to consider before leasing a shop and this guide is not intended to be exhaustive. Landlord and tenant law is a complex area of law and specialist legal advice is always recommended before entering into a lease whether you are a landlord or a tenant.
About Judith Long
Judith is a solicitor with her own practice and her specialist skills include all aspects of commercial property law and business law. With nearly 30 years experience in the law, she has worked in industry as well as private practice.
Her practice was formed in 1997 and she provides specialist business legal services to public and private institutions and individuals. For more information see www.judithmlongsolicitors.co.uk