As a business owner, taking out a commercial lease is a key exciting step in getting started in a property that suits your needs. Before signing a lease agreement, it’s important to understand your rights and obligations, and those of the landlord, before signing the contract.
Businesses naturally evolve over time, so it’s important to have a contract that balances stability with flexibility, and for the contract to protect both parties. This guide takes a look at what your obligations are when it comes to repairs, damage, early termination, payments and surveys.
Understanding your rights as a commercial tenant
Commercial leases can be quite different to if you were leasing as a private residential tenant, as they will be tailored to the specific property, the type of business and the duration of occupation.
A well-drafted commercial lease will provide protection for both the landlord and the tenant. Here, we’ll look at your rights as a commercial tenant in the UK.
1. Repair obligations
Who is responsible for repair and upkeep of the commercial property you’re leasing? For commercial property leases it can differ from contract to contract.
The division of responsibility will vary depending on the property type. In some instances, the landlord is responsible for most repairs and maintenance (although you will probably still be liable for damage that was your fault). While the majority of commercial leases, especially longer-term contracts, the tenants take on a greater role in the repair, maintenance and insurance obligations.
Buildings shared with other tenants might blend responsibility between tenants (for their own spaces) and the owner (for communal areas and the wider building).
Reviewing your repair obligations carefully will ensure expectations are clear from day one. It is recommended to seek professional advice to help you understand the implications prior to committing to a lease.
2. Rent, service charges and other payments
Commercial leases outline how and when rent, service charges and insurance payments are due. Payments are often quarterly rather than monthly with commercial agreements, and are usually payable in advance.
Transparency is important, particularly with service charges, which is why a tenant can request a cost breakdown from the landlord to help understand how the cost has been calculated.
It’s a good idea to have a legal specialist look at the contract to ensure you’re comfortable with the financial commitments involved in the lease.
3. Break clauses
A lease agreement usually covers a number of years, and the duration is legally binding, but break clauses can be written into the contract to allow the tenant to cease the contract early without penalty.
There will still be a notice period, and there will be stipulations about the state of the property when it is handed back to the owner. There’s more information on break clauses and early termination below.
4. Getting an independent survey
As a tenant, you are not obliged, legally or otherwise, to get an independent survey before you sign a lease. However, it will help you to ascertain and document the state of the building at the moment you took it on.
What to do if your business needs change?
Business needs can change over time for a variety of reasons. A business may have a growing team and require additional space, a change in the market or operations may mean that less space is needed, or businesses may want to relocate to be closer to customers, talent or supply chains.
So if you need to terminate your lease early, where do you stand? There are a few options, some that are specified in the contract, and are known in advance, others that are worked out on an ad hoc basis.
Break clauses
As mentioned above, a break clause in the contract can help a tenant if they need to end the contract early. Your lease will provide details of how to invoke a break clause if needed. The property will need to be returned in the agreed state.
Assignment
If you find that you can no longer operate from the property, you might be able to transfer the contract to another business, in a process known as “assignment”.
It is best to reach out to your landlord to discuss this type of arrangement, as they will want to perform some financial checks on the incoming tenant. The new tenant won’t automatically be able to change the contract, but as always, it could be open to negotiation.
Subletting
In a subletting agreement, the original tenant keeps their contract with the owner, but drafts a secondary lease contract with a third party.
The new tenant pays the original tenant rent, who in turn pays the landlord. The landlord will need to know about the arrangement, and they do have the right to refuse it, but often, it’s a good way for all parties to carry on as normal. Tenants might also be able to sublet a portion of the property and keep the rest, or subdivide it for multiple sub-tenants.
Surrender
In some circumstances, the landlord and tenant may agree to end a lease early by mutual consent, as many landlords recognise that business needs can change and may be willing to explore solutions that can work for both parties.
Conclusion
Entering into any contract places obligations on both parties, and business property leases are no different.
By understanding the terms of your lease, the repair responsibilities and payment structures you can enter an agreement with clarity.
If you’re looking to lease a business property in London or the wider South East of England, Sorbon Estates has many great properties for businesses of all sizes and types.
At Sorbon Estates, we aim to build long-term partnerships with our tenants, based on great communication and transparency. It’s why many of our clients have grown with us over the years as their businesses have evolved. Contact us today to see how we can help.