Commercial Leases: A Simple Guide
Whether you're renting an office or letting retail space, here's a few important things you need to know to protect your position.
By MyLegalAdviser - Last Updated June 2018
If you're considering renting or letting commercial property, there's a few key things you'll want to take into account. We've set out a brief guide below of things you'll want to look out for.
Letting or renting?
Naturally, your priorities and responsibilities are going to be different depending on whether you're renting or letting the property.
Renting a commercial property
When renting a commercial property, it’s a good idea to get a commercial property lawyer lined up early because (i) it means you’ll be ready to move quickly once you find the right place and (ii) they’ll be able to make sure the property and its terms are right for you.
For example, has the premises got the right planning permission for what you want to do with it?
There’s no use in renting a property which you intend to use as a shop but which only has permission to be used as a hotel! For more on planning permission and change of use see our Planning Permission and Change of Use section.
Letting a commercial property
When letting a commercial property, you’ll first want to consider how to market it. The traditional approach is to list it with a local agent. They’ll be able to advise you as to the level of rental income you can expect to receive and any steps you might want to take to make the property more marketable (e.g. decorations or repairs).
There are plenty of other options for letting your property though (e.g. internet sites or letting directly), so do explore which will work best for you.
It’s also a good idea to get a commercial property lawyer involved at this stage. They’ll be able to advise you on any points you need to beware of when letting the property. They’ll also be able to draw up the lease agreement, which you’ll want to have ready once you find a prospective tenant.
Waiting until you find a prospective tenant to draw up the lease will only serve to slow things down and could mean losing the tenant.
Starting early also means you get plenty of time to consider the important terms of the lease with your lawyer.
Important business lease terms to consider
Once you find an appropriate property/prospective tenant you’ll want to open negotiations over the cost. If you’re renting a property, you’ll want to get your lawyer to look over the lease to make sure you’re aware of your obligations and all the potential costs.
Whether you’re letting or renting, the key points you’ll want to consider in the lease are:
- Rent – including how much, when it’s paid and what provisions the landlord has to increase the rent.
- Term – how long is the lease for and what options do the tenant and/or the landlord have to break the lease early? Are there any penalties for breaking the lease early and, if so, what are they?
- Sub-letting or assigning the lease – can a tenant sub-let the property to another tenant or sell their lease? If so, are there any provisions regarding the tenant guaranteeing the sub-tenant pays the rent? Does the landlord have the right to withhold consent for this and, if so, what is the process?
- Service charges – are any service charges payable? If so, how much is payable and is there any shortfall in the current sinking fund? Does the landlord have the ability to increase the level of the service charge and, if so, on what basis?
- Alterations – can tenants make alterations to the property and do they need to consent from the landlord? If they need consent, how long does the landlord have to make a decision and what happens if they withhold consent?
- Repairs and maintenance – who’s responsible for the repairs and maintenance and are these responsibilities different for different parts of the premises?
- Insurance – what type of insurance is required and who pays for it.
- Terminating the lease – under what circumstances can the lease be terminated – e.g. non-payment of rent? How long does the tenant have to rectify a breach? Can the tenant renew their lease once it ends and, if so, how will the terms be decided?
Whether you’re a landlord or tenant, it’s important to take independent legal advice on these terms from a commercial property specialist.