10 tips when negotiating a commercial lease

Renting premises can be costly and often involves a legal agreement, so it’s important to consider several things before signing a commercial lease.

Starting or moving your business into a rental property is a significant step.

Before signing a commercial lease, it can be a good idea to consider various factors to ensure it’s the right choice for your business.

Renting can involve being tied into lengthy contracts, so consider how often the rent is reviewed, who is responsible for property upkeep, and ensure the property meets your business needs.

You should seek legal advice whenever you are considering taking on commercial premises and before entering into any legal arrangements such as a commercial lease or licence agreement.

A solicitor specialising in commercial leases can explain the terms, responsibilities, and restrictions that may form part of the contract.

Here are some things you may wish to consider when looking at commercial leases to help you find the right premises for your start-up.

1. Understand your business needs

Before seeking out premises and negotiating leases, you should consider your business needs.

If you expect rapid growth, you may outgrow premises before the end of the lease.

Larger properties with room to grow may be a better option.

It can also be worth checking if your potential new premises has any restrictions, such as limits on the type of business activity like storing certain materials on-site.

2. Legal advice

Commercial leases can be complex and legal terms may be difficult to decipher.

Without appropriate legal advice you could find that the lease does not meet your requirements and/or places significant obligations on you that you were not aware of.

Consider hiring a qualified solicitor to help guide you through it and discussing with them what you want out of the lease.

They may be able to negotiate with the landlord on your behalf or suggest alternative terms to include in the contract.

3. Rent-free periods

Consider asking landlords for a rent-free period.

Landlords sometimes offer these periods as an incentive to attract tenants.

This incentive may also be offered if the premises require repairs or decorating, and you are willing to carry these out during the lease.

4. Break clauses

A break clause refers to your rights in ending a lease early, as long as you give the landlord the agreed notice period.

Incorporating a break clause can provide flexibility for your business if you need to leave the premises before the end of the lease.

There are many reasons why your start-up may want to vacate premises before the end of a lease, such as a change in personal circumstances, downsizing or closing the business, or unexpected business growth requiring a change of premises.

Break clauses can work for both you and the landlord.

The landlord may also request that they be able to end the lease early with an agreed notice period.

It may be worth considering asking for only a tenant’s break clause to minimise uncertainty for your business.

5. Repair obligations

Negotiate your repair obligations before signing a lease.

Landlords may expect the tenant to have greater repair responsibility, but this can be negotiated to reduce the risk of repair liabilities.

You could agree to leave the premises in a condition no worse than the beginning of the lease and limit your responsibility to maintenance of the interior, not the exterior, for example.

6. Rights to alterations

Consider asking for the right to alter the property.

The landlord may not allow structural alterations, but the right for internal non-structural alterations may be open to negotiation.

The landlord may want to be asked for consent before any work is carried out.

In addition, they may ask for the property to be reinstated back to its original state at the expiration of the lease.

This is worth bearing in mind due to the removal costs of some alterations.

7. Caps on additional charges

It can be a good idea to negotiate a cap on additional charges to keep stricter control of your start-up’s finances.

If your lease is part of a communal area with access to facilities and grounds, the landlord may require you to contribute to maintaining such areas.

A cap will help ensure your liability doesn’t exceed an agreed amount.

8. Seek added extras

It can be worth asking for added extras in your lease.

If the lease doesn’t include car parking or spaces in a communal car park, negotiate and see if you can add it.

If it does have parking, it may be worth negotiating the number of parking bays – keep in mind how long you will be at the premises and the growth of the business.

If your property is in a communal area, see if you can negotiate using facilities such as grounds or communal rooms.

9. Personal guarantees

Landlords may request security in the form of personal guarantees if you’re trading as a limited company - most often, this will be from the business owners.

This guarantee means the landlord can take you personally to court if your business cannot make rent payments.

It may be worth walking away from the premises if any breach of the lease could leave you personally footing the bill.

10. Research the market

Research the market to check if you’re getting a good deal.

Rushing into a lease may mean you miss opportunities better suited to your business needs.

Compare prices of similar premises and consider what is on offer versus what you need for your business.

Use example rents of similar properties to negotiate a lower price if the property you want has a higher-than-average rent.

Consider researching different locations or types of property to see if any are a better fit for your business.

If you’re considering moving your business rurally, read our guide to the top benefits of starting a rural business.