Taking a Commercial Lease
The hospitality and leisure sector has arguably been one of the worst-hit sectors over this past year by the Coronavirus outbreak and associated mitigation measures. There has been a considerable strain on tenants and occupiers of leasehold premises in the sector. To try and support tenants taking a commercial lease, we have set out our top 10 tips to provide some useful guidance.
1. Repair
A ‘full repairing lease’ means you will be responsible for all repairs to the property inside and out. Landlords also expect regular re-decoration to occur. If you are taking a lease of property that is not in a good state of repair when the lease is granted, consider making use of a schedule of condition.
2. Dilapidations
Often leases require the tenant to put the property back into good condition when they leave. This can be very expensive, and in some instances, involve putting the property into better condition than when the lease was signed
3. Rent
In the hospitality sector, consider whether it would be appropriate to discuss with the landlord that part of the rent payable is linked to the turnover achieved at the premises.
4. Terminating the lease early
Having a break clause in a lease gives a tenant the flexibility to end the lease early. It is extremely important to consider any pre-conditions contained in a break clause. The conditions of a break clause are strictly interpreted by the Courts and can easily be misconstrued by tenants.
5. Assignment and underletting
Rights to underlet or assign a lease provide tenants with the flexibility to streamline their property liabilities where circumstances change during the term of the lease. Such dealings will either be absolutely prohibited by the lease or only be permitted with the landlord’s prior consent and subject to certain pre-conditions that need to be complied with.
6. Rent Review
When renting any type of commercial property, particularly with a long-term lease, you will be subject to rent reviews. These tend to be every three to five years and can alter the amount you pay over time. Consider whether the rent review is on an open market basis, or perhaps another mechanism such as being linked to changes in the Retail Prices Index.
7. Service Charge
The service charge is the cost of maintaining and repairing a property that the landlord charges back to the tenant. You can try and cap the amount of service charge you pay when negotiating the lease terms.
8. Rights to Renew
Depending on how your lease is drafted, you may have the right to renew your lease on similar terms when it expires. This can be a valuable right, especially where you want to create goodwill in a particular location.
9. Alterations
Alterations are often prohibited for any exterior or structural part of the property, and internal non-structural alterations are usually commonly allowed with the landlord’s prior written consent. Consider how this might affect what changes you might want to make to the premises.
10. Term
This is the length of the lease. The lease length must fit with your short and long-term business plans. This is why it is important to plan ahead, especially when there are restrictions on whether you can break, assign or underlet the lease.
If you are a commercial tenant and have any questions or would like more information regarding commercial leasing, please contact our Real Estate Team on 0161 941 4000 or you can email the Real Estate Team.
Here to help
If you are a commercial tenant and have any questions or would like more information regarding commercial leasing, please contact our specialist Commercial Property Team on 0161 941 4000 or email The Commercial Property Team.