What to Consider Before Signing a Commercial Lease
Signing a commercial lease is a significant decision for any business. Whether you are moving into your first premises or relocating, the terms of the lease can affect your costs, flexibility and long-term plans.
Before signing a commercial lease, it’s important to understand the key points that may influence whether the property truly suits your business.
1. Length of the Lease and Flexibility
One of the first things to consider is how long you are committing to the lease. Some businesses prefer a short term lease to retain flexibility, while others need a longer term to support investment and growth.
Check whether the lease includes a break clause. This can allow a tenant to leave the lease early, subject to certain conditions. While a break clause can offer flexibility, it is important to understand how it works before committing.
You should also check whether the lease falls under the Landlord and Tenant Act 1954. A lease protected by this act may give tenants the right to renew their lease at the end of the term. Other leases are contracted out of the act, which means that there may be no automatic right to stay on.
2. Rent, Rent Reviews and Incentives
The headline rent (gross annual rent payable) is only part of the bigger picture. Most leases include a rent review, often based on open market value, which can take place every few years.
Understanding how rent review clauses work is important, especially where reviews are upward only. You should also check whether any rent free periods are offered at the start of the lease, as these can help with cash flow while setting up.
Many lease terms can be discussed and agreed before signing, so it is often possible to negotiate terms that better suit your business.
3. Repairing Obligations and Condition
Repairing liability is one of the most important areas to understand. Some leases require tenants to keep the property in good condition throughout the term, even if it was not in that condition at the start of the lease.
A schedule of condition can help record the state of the commercial property at the start of the lease and may limit future repair obligations. For longer leases or older buildings, understanding the condition early can help avoid unexpected costs later.
4. Service Charges and Additional Costs
In addition to rent, tenants are often required to pay service charges. These may cover maintenance of shared areas, insurance and other ongoing costs.
It’s important to understand what is included in service charges, how they are calculated and whether there is any limit on future increases. These costs should always be considered when assessing affordability.
5. Permitted Use and Restrictions
Commercial leases usually set out how a property can be used. It’s important to ensure the permitted use aligns with how your business operates now and in the future.
Some properties may be suitable for certain activities, such as offices or retail but not others without further permissions. A narrowly defined use can limit flexibility, particularly if your business changes direction or if you plan to assign the lease later on.
Leases may also include other restrictions, such as limits on opening hours or specific activities within the property. Understanding these points early can help avoid complications later.
6. Alterations and Fit-Out
Most leases place limits on alterations to the property. Structural changes are often restricted, while internal alterations may be allowed with landlord consent.
If the property needs adapting to suit your business, it’s important to understand what changes are permitted and whether approval is required before signing the lease.
7. Ending or Transferring the Lease
Some leases allow tenants to leave early or transfer the lease to another party, subject to certain conditions. These options can be important if your circumstances change or if you plan to sell the business.
Understanding your options for ending the lease early or assigning it to someone else can help with long-term planning and reduce risk.
8. Take Professional Advice
A commercial lease is a legal document and the terms can have long-term implications for your business. Taking independent legal advice before signing can help you understand your obligations and avoid unexpected issues later.
Working with experienced commercial agents can also help you make sense of market terms, identify potential risks early and ensure the lease aligns with your business plans.
Final Thoughts
Every commercial lease is different and what suits one business may not suit another. Taking the time to understand the key terms before signing can help ensure the property supports your business rather than restricting it.
At GPS Commercial, we support businesses through commercial property decisions every day, helping them understand lease terms and make informed choices from the outset. Get in touch today to find out more.
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