After hours of searching, you have finally secured the perfect building, factory or office space. But, your work is not over yet. It’s imperative that you negotiate for favourable terms within the commercial lease agreement that you need in order to secure the perfect commercial space. Your lease is typically likely to form one of your biggest outgoings, so don’t make it a liability for years to come by failing to negotiate the correct terms and conditions your business needs to successfully operate and thrive.
Believe it or not, successfully negotiating a commercial lease is an art form. Keep in mind that when you are presented with a commercial lease agreement, the terms will always typically be weighted in the favour of the landlord. They will expect you to negotiate with them. If you fail to negotiate with them, they will think they have struck gold. Much of your power to negotiate as a tenant will depend on the rental market at the time and whether it is in your favour.
The Length Of The Lease
In an ideal situation, you will want a lease that is protected by the Landlord and Tenant Act (1954). This will then ensure that you have a right to automatically renew your lease when the old one is set to expire. Landlords can only object to a renewal on limited grounds. If you only want a short-term lease, then you may choose to exclude the Landlord and Tenant Act provisions. In doing so, it is essential that you seek advice to make sure that you fully understand the consequences of your decision. As your business grows, the security of tenure will become more important, especially if you have found the perfect commercial property.
Rent and Rent Free Periods
Landlords are not typically open to negotiation when it comes to rent. This does not mean, however, that you shouldn’t try and get more for your money. If you are unable to get the rent reduced to a more affordable level, would the landlord be able to offer you a car-parking space or a credit for the cost of public parking? How about a rent-free period?
Rent free periods are actually quite common with commercial leases. You may find that your landlord offers you a payment holiday to sign you up. If there are repairs that need doing and it isn’t practical for the landlord to fix them before you move in, you could ask for a rent-free period to compensate for the cost of repairs and any lost business you missed out on whilst they were carried out. A rent-free period at the beginning of a tenancy can help out massively with your cash flow, especially if you initially have very little money coming in.
The Break Clause
If you value your flexibility, then you should negotiate a break clause. A break clause is essentially a clause that allows a tenant to end their lease at a certain time before the term expires. For example, if you commit to a five-year lease on a shop premises and you agree to a break clause that can be triggered after two years of occupancy. If your sales aren’t quite as good as you had hoped or projected, if you have a break clause in place, you are able to end your lease at the two-year mark and use online sales to build up your brand. Again, if this is what you choose, seeking legal advice is necessary.
The landlord’s solicitor will draft up the lease agreement and, if a break clause is included, some strict terms can make it difficult for tenants to make use of the clause. For example, a landlord can insist that in order for a tenant to have rights to exercise the break clause, they must comply with all covenants within the lease with 100% compliance which, at times, can be near impossible. Recent cases with this issue have seen judges rule in favour of landlords, so the Courts won’t provide you with assistance, even when you are the tenant. This then leaves the tenants stuck with a property and lease that do not match their business needs.