What should you consider when taking on a commercial lease?

For any business – but particularly startups and new enterprises – signing a commercial lease is one of the biggest commitments you will make. The rent will be one of the main outgoings and if the building is inadequate, or the landlord unwilling to meeting their obligations, this can have a big effect on the business. So, what should you think about before you sign on the dotted line?

Choose the property carefully

There are three main questions to consider when looking for that perfect commercial property: location, use and planning permission. Once you’ve signed the lease you can’t change the location of your business without incurring cost so be sure that it is suited, whether you need the passing trade for a retail site or staff accessibility for an office. Make sure the landlord is happy with the way your business will be using the buildings and check the Local Authority businesses uses. These are usually: A General retail, A2 Financial and Professional A3 Food and Drink. The wrong use means applying for planning permission to get it changed.

Work through the costs involved

Beginning a commercial lease can be an expensive business. In addition to the rent and business rates you will also need to think about other costs, such as insurance and legal and surveyor fees. Stamp Duty Land Tax is now payable by the tenant (2% on £150,001 - £250,000, 5% on £250,001+) and there is a charge to register a lease with H. M. Land Registry if it has more than 7 years on it (up to £910, depending on lease value). Finally, remember that you may have to pay service charges for repairs, security etc.

Make sure you’re happy with the key provisions

Due to the crucial nature of the commercial lease document, and that fact that you may need to negotiate some clauses, it’s always a good idea to take legal advice before signing. The key provisions in any commercial lease are those that affect occupation and costs.

The term of the lease. This is the length of time you can occupy the building. There is no standard term for a commercial lease but market lengths tend to be around five years for an office and 10 for a retail space. If you want the flexibility to leave early then make sure you insert a break clause – however, bear in mind this could increase the rent.

The cost of the rent. How much is the rent, when is it due and when – and how – is it likely to increase? Most leases for more than five years will contain a rent review clause that allows the landlord to increase the rent. If you have a long rent free period at the start of a lease, make sure you understand how much you will pay once this ends. Bear in mind that many landlords offer a cheap looking rent and supplement this by large service charges.

For advice on commercial leases from a specialist solicitor in Lancaster or Preston call 01524 386500 or click here.