Key considerations for taking a lease of a commercial premises

By Sarah Secker

What are the key considerations for a business tenant taking a lease of commercial premises?

Many new businesses were founded during the pandemic and some of them will now have grown to the stage where business premises are needed. Business owners are likely to be faced with being asked to enter into a commercial lease of, for example, retail, office or industrial premises. Potential tenants should be fully aware of their responsibilities and obligations in a commercial lease before making any commitment. We discuss here some of the key issues for tenants to consider.

It is advisable to commission a survey by a qualified surveyor to ascertain the state of repair of the premises. Many leases contain full repair obligations which will oblige 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. This means that the tenant is not required to put the premises into any better state of repair than as shown in the schedule. Any service charge provisions also need careful review and ideally a tenant will negotiate an annual service charge cap.   

Tenants should query whether there will be rent reviews during the term of the lease. Commonly there are upwards only rent reviews every three or five years. There are different mechanisms to  review the rent and sometimes it may be by reference to the RPI (Retail Prices Index) which has been surprisingly high of late due to the steady increase in inflation.

Tenants need to consider what fitting out works they will need to undertake to the premises. 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 consent should be accompanied by full details of the planned works and made in good time so that work can commence at the start of the lease term. A well advised tenant will have negotiated a rent free period in which to carry out its fit out.

It is recommended to negotiate a tenant's break clause so that notice may be served on the landlord should it be necessary to end the lease term early. A minimum of six months’ notice is usually required.  Break dates commonly coincide with the rent review dates.

A landlord will most likely ask for a rent deposit and/or guarantor from a tenant operating a new business. A rent deposit will typically be three to six months’ worth of rent and be 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 will need to be individually checked depending on the tenant’s requirements.  Sampson Coward’s commercial property department frequently advises tenants and negotiates leases on their behalf; please contact us on 01722 410664 for detailed advice.

Sarah Secker