What to look for in a commercial lease

commercial property leaseOK – you have decided you need to take some premises for your new start-up and you have found a great location, but what to look for in a commercial lease?   The landlord’s agent sends you a lease.   It is 70 pages long.  You have yet to instruct a lawyer but you want to have a quick look through the lease to see if there are any nasties.   However, this thing is massive and it is all written in heavy legal jargon.   What to look for in a commercial lease?

Well, most leases are organised in the same way so once you follow these guidelines, you should be able to at least move around the document with some confidence.

What to look for in a commercial lease?

The key things to look for in a lease are things which are going to cost you money.  So in order of priority,  rent, rent review service charge, insurance and the tenants obligations (called Tenants covenants in most leases).   Next you need to look at the provisions in the lease which could prevent you from using or enjoying the premises so this would include rights granted to the tenant, rights reserved to the landlord, the user covenant, restrictions on signage and alterations.

You may have had a bit of a negotiation with the agent and this may have led to the agent preparing something called  Heads of terms which sets out the terms which have been agreed at the initial negotiation stage.  These are not contractually binding but most parties would not want to revisit these points if they have already been agreed.

So if there are Heads of Terms that would be a good starting point.  Does the document you have been given reflect what you agreed and which are hopefully set out in the Heads of Terms.

Key areas to focus on initially are the property which is being let (known as the demise or the demised premises).  This could be a written description or it could be reference to a lease plan.  If the term is over 7 years, the plan will have to be Land Registry compliant which means it must have a north point showing where north is, it must be drawn to a scale which the Land Registry recognises (1:200 or 1:500) and must contain sufficient identifying features that it can be plotted on the Land Registry filed plan.

The next thing to check is the term of the lease, that is how long the lease will last.   Look out for options to bring the lease to an end known as “break clauses”.  These should have no conditions attached to them because otherwise the landlord can thwart the tenant’s ability to terminate the lease early.

What to look for in a commercial property lease? well next check the rent and the rent review provisions.  Now rent review provisions are probably the most technical area of the whole lease and you really do need to bring in a surveyor to advise on this.

The rent review and service charge provisions are found right at the back of the lease and are usually in schedules.

After the parties and definitions come the operative words where the landlord grants and the tenant takes the lease.   This is where the term is found.   After the operative words you have the tenant’s obligations and these go on for pages.   They include the repairing obligations, the alienation provisions which govern the tenant’s ability to assign or underlet the lease.  Alterations and signage are also contained in this section.

This is then followed by the landlord’s obligations which is very short section.

The break clause is usually right at the end of the commercial lease before the schedules.

The first schedule of the commercial lease is usually a detailed description of the premises followed by the rights granted to the tenant.   The rights reserved to the landlord follow after that.

So now you have a rough idea of where to find the various provisions in a lease.  It is never a good idea to take a lease without legal advice but at least you will be able to have come up with some sensible points when you instruct your solicitor and hopefully, I’ve answered your question: what to look for in a commercial lease?

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Dominic Beeton, Solicitor
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