Considerations when taking a lease of commercial premises

By Sarah Secker

What should a prospective tenant consider when taking a lease of commercial premises?

It is advisable to commission a building survey as many leases contain full repair obligations obliging a tenant to put the premises into good and substantial repair if they are not already in that condition. A common compromise is for a tenant to record the state of repair and condition at the outset of the lease in a photographic schedule of condition, so they are not required to put the premises into any better state than as shown in the schedule.

Any service charge provisions need careful review - ideally a tenant will negotiate an annual service charge cap. Also check if VAT is payable on the rent.

Ask if there will be rent reviews during the term of the lease. Commonly there are ‘upwards only’ rent reviews every 3 to 5 years. There are different mechanisms to review rent and sometimes it may be referenced to the RPI (Retail Prices Index).

Consider what fitting out works will be required. Structural alterations are usually prohibited but non-structural alterations are often permitted with the landlord's consent which cannot be unreasonably withheld or delayed. An application for landlord’s consent should be accompanied by full details of the planned works and made in good time so that work may begin at the start of the lease term.

Negotiate a tenant's break clause so that notice may be served on the landlord if the lease term needs to end early. A minimum of six months’ notice is usually required.

A landlord will most likely ask for a rent deposit and/or guarantor from a tenant (particularly if operating a new business). Typically 3 to 6 months’ rent is held by the landlord for the duration of the term as security for breaches of the terms of the lease.

Please note these are general principles and each lease should be individually checked. Contact Sarah Secker in the Commercial Property Department at Sampson Coward on 01722 410664 for more information and advice.

Sarah Secker