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 opens in new window 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 opens in new window 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.
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Tips for negotiating a commercial lease
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 opens in new window, 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 opens in new window 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 opens in new window.
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 opens in new window − 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 opens in new window 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 opens in new window 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 opens in new window or types of property to see if any are a better fit for your business.
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Reference to any organisation, business and event on this page does not constitute an endorsement or recommendation from the British Business Bank or the UK Government. Whilst we make reasonable efforts to keep the information on this page up to date, we do not guarantee or warrant (implied or otherwise) that it is current, accurate or complete. The information is intended for general information purposes only and does not take into account your personal situation, nor does it constitute legal, financial, tax or other professional advice. You should always consider whether the information is applicable to your particular circumstances and, where appropriate, seek professional or specialist advice or support.
