April 2020
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How to negotiate a commercial lease

How to negotiate a commercial lease

Buoyed with the enthusiasm of having secured the ideal commercial space in a perfect setting, it is easy to think that the lion’s share of the tenants’ work is done. However, it is imperative that you, with the help of professional advisers, negotiate the lease terms. The lease is likely to be one of your biggest outgoings, and it is important to ensure that this is a bedrock of your business rather than a liability. Negotiating a commercial lease is a practiced art, and it should always be borne in mind that the draft commercial lease will be weighted in favour of the landlord. He will expect you to push back on the terms and negotiate. Your negotiating power will depend on current market forces, but some essential points are always relevant.

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Considerations

Outline a comprehensive set of terms as a basis for negotiation to allow a free hand in the actual lease negotiations.

Think about who is taking on the lease. A limited company will avoid personal responsibility. The entity taking it on will be liable for all the associated tenants’ liabilities, including any service charge and ancillary payments. This can become contentious and potentially litigious. For example, see the press at the end of last year involving John Lewis.

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Ask for a rent-free period. This will be subject to the state of the market, but the advantages of a rent-free period if substantial fitting out is required are obvious. A break clause in the lease to ensure flexibility (on both sides) is also an important consideration.

Considering repairing liabilities; the tenant should be aware of signing up to an overly onerous repairing liability. As a safeguard, if the property is not in full repair, a comprehensive schedule of condition should be prepared, ensuring that the obligation to reinstate the property is only to the state of repair detailed in the schedule. A property inventory app such as https://inventorybase.co.uk/ is now widely used to minimise and streamline administration in the preparation of property schedules and reports. Using property inventory software, on-site inventories and reports can be produced efficiently and speedily and in a customised format.

Summary

The law favours the tenant, so it is important to negotiate hard to give you certainty and flexibility for your business needs, both current and anticipated.

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