What should you consider when taking a new business premises lease?

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Business meeting

Wherever you’ve found the ideal premises for your business, whether a current building, in one of Bedford’s shared office facilities, or you’re watching the construction of one of the new commercial buildings along the A421, what terms should you be aware of during the negotiation of your new business premises lease?

Generally, a commercial landlord will have an agent acting for them and they will be tasked with agreeing a set of terms that will form the basis of your lease. The following are some of the terms you may come across during this process…

Term and break clause

If you are looking to enter into a lease of more than five years, a tenant-only break clause provides the opportunity to terminate the lease early should your business require it.

Rent, VAT and rent free periods

Rent can be payable on either a monthly or quarterly basis, and this should be agreed at the outset so that you can budget accordingly.

Equally, some landlords may opt to tax the property (generally, no VAT is payable) which means that you will be liable to pay VAT on that rent.

You may also wish to request a rent-free period at the start of the lease to account for any period of non-trading while you set up.

Rent deposits

The landlord may request that you pay a rent deposit of three months or more, which will be held by them in a separate account but can be used to compensate them for any loss suffered whilst you are in occupation, i.e. to account for any unpaid rent or a breach of the lease.

Landlord works

If the property is in a bad state of repair you may agree that the landlord carries out some renovation or refurbishment at their own cost. This may, however, result in an Agreement for Lease, which is essentially a contract which, when exchanged, commits you to completing on the lease when the works have been done.

Repair provisions

Ensure that you are comfortable with the repair obligations, as you will be required to place the property back into the same condition it was in when you gained occupation.

If the property is in need of repair and the landlord is not proposing to carry out any refurbishment, it may be possible to agree a cap on your repair liability up to the current condition and this would be evidenced by a Schedule of Condition.

This Schedule consists of a set of photographs which can be prepared by yourself or a qualified surveyor.

Fitting out works

If you are intending to carry out any works to the property before you commence trading, address this at the outset, as a Licence to Alter will likely be required. If this is prepared at the same time as the lease, you will only be responsible for your own legal costs in respect of this, but if you wait until the lease term has started you will also be liable for the landlord’s legal costs.

Assignment/subletting

If you have a longer lease term, ensure you have the means to assign the Lease (sell it on) or sublet it to a third party in the event that your own occupation is no longer viable.

Security of tenure

Be clear that you understand your rights at the end of the lease. If the lease is contracted out of the Landlord & Tenant Act 1954, this means that you have no automatic right to remain in the property. You will at that time have to agree on a lease renewal.

For further advice on agreeing lease terms for a new or existing premises, please contact Reena Mistry in Woodfines’ Commercial Property team on rmistry@woodfines.co.uk

Reena Mistry, Woodfines Solicitors

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