What to consider before signing a lease on commercial premises
Service charges, the length of a lease, and whether there's a rent-free period are factors to consider before you sign on the dotted line
Finding the perfect property for your business involves far more than just picking the right location, or choosing an appropriate work space. Once of the most stressful and potentially problematic stages in securing premises is the signing of the lease.
As soon as the ink dries on that dotted line you’ve committed yourself and your business to one of, if not, the most expensive overheads you’ll need to fork out for.
It’s absolutely essential you don’t get caught out as a bad premises decision can mean life or death for your venture even if sales are great.
If at all possible you should avoid signing a lease without having a reputable lawyer look over it with a fine toothcomb.
Someone that specialises in commercial property will know exactly what to look out for and highlight any areas of concern or clauses that should be negotiated.
However, if your budget is limited there are certain things you need to look out for.
Length of lease
According to Stuart Darlington, a commercial property partner at Davenport Lyons, there is no real typical length of lease. It depends on how long the tenant wants to sign up for and what the landlord will agree to.
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As a general rule however, retail leases are usually about 10 years while office space can start at five years.
Break clauses can be inserted into a contract at any point but are generally at the three or five year mark. However, be careful when it comes to stamp duty as this will be payable on the length of your agreed lease and won’t take into account any break clause you’ve negotiated.
Don’t be fooled by a seemingly great rental price unless you’re aware of exactly what your liability for service charges is.
Davenport Lyons’ Darlington says service charges can by a third or even half again, on top of what you pay in rent.
Unless exemptions are specified in the contract, a landlord can get away with charging for almost anything to be done to the building, even a complete refurbishment.
Again, employing a good lawyer will prevent you from falling into this trap as they’ll make sure costs such as these are exempt in your contract.
While great deals on rent can be negotiated in times of recession, it’s important to make sure you’re getting a good deal in the long-term.
Remember that if you’re offered a long rent-free period, the eventual rent will often by inflated to take that into account.
Landlords aren’t in the habit of negotiating lower prices at rent reviews even if the market dips. Prices tend to move in one direction and one direction only – upwards.
This is by no means an extensive list of lease pitfalls to watch out for, it’s merely a starting point.
The fee you pay a lawyer to look over a lease before you sign it could pay for itself several times over if certain problem areas are highlighted and renegotiated, so it’s definitely worth considering this up-front cost in favour of long-term peace of mind.