Advice on lease requirements

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Laura Saul

Director in Commercial Property

Partnering businesses as they grow into bigger premises and expand their portfolio is one of the most satisfying parts of the job as a commercial property lawyer.

Wake Smith works alongside clients as they move from starter bases into larger and improved accommodation, offering advice along the way on lease requirements, then potentially purchases and sales.

While owners concentrate on running their growing businesses, our team deals with all elements of commercial property negotiations including leases.

This includes:

  • The length of a lease
  • Rent reviews
  • Break clauses
  • Repair obligations
  • Assignment and subletting

We recommend taking advice from Wake Smith from the start of negotiations and always before you sign a commercial lease agreement.

Commercial tenancy agreements need clarity and careful drafting to ensure you don’t fall foul of unintended long-term obligations and hidden financial liabilities.

The most important factors we consider when negotiating the terms of a commercial property lease are:

The length of a lease

  • How long do you plan to stay at the premises?
  • It may meet your use now but what about the future?
  • What if you plan to sell your business at a future date?
  • Committing to a long lease on a property if you are aiming to relocate or purchase may not be the best move. On the other hand, if you plan develop, grow and maybe even sell your business, the security of a longer term might be preferable.
  • Depending on the length of the term, do you need the ability to break, assign or underlet the lease?
  • Click to watch our video on lease lengths 

Rent reviews

  • Rent reviews involve reassessing the rent being paid. The longer the term of the commercial lease taken, the more likely a rent review.
  • These can be extremely complex and come in a variety of forms, from market rent reviews to clauses linking rent increases to inflation.
  • There are many aspects of rent review clauses which can catch tenants out. We can advise if you are agreeing to something unreasonable.
  • Click to watch our video on rent reviews

 Break clauses

  • Many tenants assume they have a right to terminate the lease when they want, without consequences which is rarely the case.
  • Some leases do contain clauses allowing one or both of the parties to terminate the lease but these clauses are often not straightforward.
  • Where a break right does exist, the landlord may share the same right as you, to terminate the lease, creating uncertainty. The break right may be also be conditional on certain actions taking place which can be difficult to comply with. It is essential to ensure that any break right is exercisable with certainty as to any conditions.
  • We can advise on these elements to ensure the break right is reasonable and fair to both parties.
  • Click to watch our video on break clauses

 Repair obligations

  • The majority of new commercial leases are on a full repairing and insuring basis. This means it is a tenant’s responsibility to repair and pay for the insurance of the premises.
  • What ‘repair’ constitutes can depend on the wording of your lease.
  • We look at the level of responsibility on tenants during lease negotiations.
  • You should be aware of the degree of your responsibility from the start because repair clauses are one of the most commonly litigated aspects of commercial leases.
  • Click to watch our video on repair obligations 

 Assignment and Subletting

  • Leases can prevent assignment, meaning you cannot transfer or sell your lease onto a new incoming tenant.
  • Even if you are able to transfer the lease, you may continue being responsible for the incoming tenant’s ability to comply with the terms of the lease under guarantee provisions.
  • Your right to sublet (granting a lease out of your lease to a third party) a premises is also usually restricted. We ensure you are fully aware of your rights to assign and sublet before taking on the lease.

 These are examples of just some of the factors that can lead to unexpected, and sometimes substantial, costs if you don’t have a full understanding of what the terms of the lease mean and the implications of them.

 For further advice on business leases contact us at [email protected] or on 0114 266 6660

Published 03/03/23

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About the author

Director in Commercial Property

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