Things to Know Before Signing a Commercial Lease

by | May 5, 2023 | blog

It’s critical to comprehend what you’re signing up for if you’re considering renting out business property. According to commercial property agents, commercial lease has a variety of obligations that, if you’re not ready, can be a major surprise. This makes it extremely different from renting a residential property.

Before signing any leasing agreement, any potential commercial renter should ask the following ten questions:

1. What exactly am I leasing?

This is crucial since it makes clear which places you can use for your business and typically identifies what you might be responsible for fixing. Are you leasing a ‘eggshell’ or the entire building, including the roof and the grounds?

2. Was there any inducement to lease the property?

Rent-free or reduced-rent periods and other comparable incentives are frequently provided to tenants. Make sure that any agreements you have with the landlord are covered in the formal lease documents. Your legal counsel will be able to walk you through your alternatives for handling these inducements and how to best defend your case.

3. What have I committed to ‘maintain in repair’?

In reality, if you agree to “keep the property in repair,” you are agreeing to “put and keep” the item in repair. This implies that the landlord may ask you to complete repairs for any damage present at the time the lease was signed. It is more difficult to maintain the property in “good repair and condition” since you may be compelled to make repairs even when there are none necessary.

When negotiating the final terms of a lease, you can try to limit your liability. Your legal counsel can explain some options.

4. For how long am I obligated to the lease?

Even though business may be booming right now, bear in mind that anything can happen, and even if it does, you will still be obligated to pay rent for the duration of the lease. This could eventually result in the removal of you and your company from the property and, ultimately, insolvency.

5. Am I allowed to end the lease early?

Break clauses in the lease can assist you shorten the term, but take into account any restrictions or circumstances that may limit your use of this. One typical one is that you must have paid your rent on time up until the lease’s break, thus you usually cannot utilise a break provision as a “get out of jail free” pass if you run into financial difficulties.

6. Do I have security for the tenure?

You might have the option to extend your lease at the conclusion of your fixed term, depending on how the lease is written. If you continue to live in the house after your lease has expired and your landlord accepts your rent payments, you could potentially obtain security. This obviously depends on the circumstances, so you shouldn’t presume you have security before seeking legal counsel regarding your particular situation.

7. Can I sublet or transfer the lease?

Many commercial landlords permit tenants to sublet or transfer their lease to another party, but only with their permission and under specific restrictions. This can entail you acting as the new tenant’s surety, and the landlord will probably charge you for asking for their permission.

8. Can I make any changes to the house I’m renting?

Any exterior or structural element of the property is frequently off-limits to renovations, although internal non-structural alterations are frequently permitted with the landlord’s prior written agreement. The landlord may put a number of requirements on you when obtaining consent, requiring you to carry out the alterations in a specific manner. You may also be compelled to take down your alterations at the end of the lease, which can be quite expensive.

9. What additional payments are required? Assurance, a service fee, and VAT?

Tenants frequently pay the landlord’s insurance premium after the landlord has insured the property. Is the landlord billing you for any services rendered, such as the upkeep of any building’s common elements? How will your percentage be determined? Is the landlord’s ability to incur expenses restricted? The service charge provisions in leases are typically fairly specific, so you should consult your legal counsel before signing.

10. Is the rent consistent throughout the term?

Will the landlord ever want to reevaluate the rent? In that case, why? What if there is a difference of opinion? How is it to be settled? The lease itself should address all of this.  Make sure you are familiar with the rent review procedure in your contract so that you will be prepared financially if the landlord brings up the subject.

These are some of the most important things to think about when signing a lease, but there are a lot more things to take into account, such as title checks, stamp duty and land taxes, registration requirements, deposit policies, required consents, satisfactory search results, and answers to questions.

Read through our useful guide for more information

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