Committing to a commercial lease is a major step for most businesses to embark on – bringing with it a number of obligations. hlw Keeble Hawson commercial property team solicitor, Thomas Milner, has compiled a check list of what the lease should contain to help ensure tenants’ interests are protected:
- Break clause: a tenant may wish to terminate the lease early if their business circumstances change. Any break clause must be drafted correctly so the landlord cannot argue that the tenant has to remain in the property due to a technicality.
- Rent: ensure the document confirms the length of the lease so the tenant knows the exact amount of rent to pay. For example, will the rent be reviewed on a certain date and will the basis of that review be an open market valuation or be based on increases in the Retail Price Index? The tenant is advised to take specialist advice from a valuer before agreeing the rent and any rent reviews.
- Repair obligations: be certain of the costs of complying with the lease’s repair obligations. For instance, if the lease is drafted to make the tenant responsible for keeping the property in good repair and condition, this implies that the tenant may have to undertake full repairs to the premises, notwithstanding its condition at the start of the lease. If the tenant does not comply with the repair obligations, the landlord may serve a Schedule of Dilapidations, which sets out the repairs they believe the tenant is responsible for. It also imposes a timetable for the repairs to be carried out. The lease often contains a clause that enables the landlord to carry out repairs itself, then recover the cost from the tenant.
- User clause: the tenant must know exactly what the property can be used for. Does the user clause align with their commercial needs – and can they carry out the purposes of its business in accordance with this clause?
- Access: it is vital to ensure the lease enables the tenant sufficient access to all the property’s services.
- Insurance: the landlord usually insures the property and recovers the cost from the tenant. The lease should be checked to ensure it includes appropriate insurance obligations to cover any potential loss and/or damage to the premises.
- Services: A service charge often applies to units on a larger estate, where the landlord agrees to provide a number of services relating to its common parts. The tenant needs to check, and budget for, the potential service charge costs before entering into the lease.
- Alterations: it is key for the tenant to check if the lease permits them to undertake any alterations. In many commercial leases, external alterations are prohibited but non-structural alterations are allowed with the landlord’s consent which should not be unreasonably withheld.
- Selling the property: lease terms should be examined to confirm if they allow the property to be sold to another party – and if so, what the implications would be for the tenant.
- Term of the lease: the tenant is also advised to ensure the length of the lease adequately meets their business needs. They will be legally obliged to comply with all terms throughout its life, once they have signed it, so it must be commercially worthwhile for them.
