Points to look out for as a tenant on taking a commercial lease

When trying to agree Heads of Terms with an agent acting for the Landlord or in negotiating terms with the Landlord direct for a new lease give some thought to the following basic points:-

  1. Term – What length of lease term do you want? Bear in mind that for leases over 7 years in length a Stamp Duty Land Tax return is likely to be required, even if no SDLT is actually payable. Leases of over 7 years also need to be registered at the Land Registry.
  2. Repairs – Whose responsibility will it be to keep the property in good repair and condition. Does the Tenant have to maintain just the interior or the whole of the property? What kind of condition is the property in before the lease starts? If it is poor, is there an obligation to improve the property by putting it in good repair? It may be worth trying to limit the repairing liability of the Tenant by reference to a photographic Schedule of Condition, so the Tenant does not have to put the property in any better state of repair, condition or decoration than it was at the start of the lease.
  3. Rent Review – Is there a provision for the Landlord to increase the rent part way through the Lease term? If so, is it tied into the market value rent at the time of review or is it index linked e.g to the rate of inflation.
  4. Service Charge – Is there a Service Charge payable? If so, how is it to be calculated? Is there a limit to the services that the Landlord can charge for? Is there an obligation to pay additional funds into a sinking fund to provide for future potential expenses?
  5. Break Provision – Do you want the option to end the lease at an earlier stage if things do not work out as planned? If so, try and have it so that you don’t have to meet stringent provisions in order to exercise the break. Ideally, you just want to be able to serve the required notice to bring the Lease to an end.
  6. Contracted out – For a commercial lease the starting point is the at the end of the lease, subject to a limited number of exceptions, the tenant is entitled to renew the lease at the end of the term under the Landlord and Tenant Act 1954. If the landlord wants the lease to be “contracted out” it means that the renewal rights will be excluded, so if you wanted to renew the lease at the end of the term, you would be reliant upon the landlord agreeing to do so. Your position would not be very secure, which could be an important factor if you are investing in building the goodwill of the business at that particular address and/or want to avoid the costs of moving property at the end of the term.

The respective positions of landlord and tenant on negotiating Heads of Terms may come down to bargaining position.

If in any doubt as to what can or should be agreed in principle, consider consulting either a solicitor or independent agent for advice. You may find that the initial advice is given without charge or at nominal cost.

Brandon Titterington is Head of Property at Jordans Solicitors and a specialist in commercial property matters.