Many businesses still need a physical location to operate from, be it a shop, offices, workshop, factory or storage facility. Whilst some businesses may also own the premises they use, many will be leasing their facilities for an agreed rent.
When businesses lease a property or take on a lease for a property there many factors to consider. Rental value is often just one of the considerations, businesses also need flexibility so they can grow and some flexibility to move on to alternative premises if the business needs change. Landlords need security and need to ensure their investment is protected. So, leases are often complex and need careful drafting to make sure they meet the needs of all parties.
Buyer Beware
When a tenant takes a lease, it is their responsibility to make sure it is suitable for their business needs. It is important that solicitors undertake comprehensive searches and enquiries to discover if there is going to be any problems with the property or it’s location, just as you would if you were purchasing a house. Our lawyers will be able to carry out all necessary searches and reveal everything you need to confidently take the lease forward.
‘the best lease for your needs’
At Sehgal we can draft or review all types of leases. We can negotiate on the terms of the lease and advise clients which type of lease best suits their needs, be it for the short, medium and longer term.
The Term
Leases are usually granted for a fixed period; a ‘term’. The term of the lease is very important, both to the landlord and the tenant. If, for example, a business needs to vacate its premises due to a downturn, they will only be able to end the term early if they have agreed in the lease an option to do so (‘a break clause’) or if they can get the landlord to agree to release them prior to the end of the term.
It is important to make sure if you are entering into a lease, that this eventuality is considered before signing. If there is no way out of the term, the business that has taken the lease can find itself legally obliged to pay rent until the very end of the term, even if they are no longer in the building.
Service Charges and other costs
The rent and the term of the lease are not the only factors you need to take into account when entering into a lease. Quite often business will be renting only part of a building; an office in an office building or a shop in a shopping centre. That means there will be common parts of the building, such as a reception, car parking, or lifts, that need to be maintained and funded. The tenant will be responsible for a share of the upkeep in addition to the rent they pay, and this payment is sometimes known as a service charge.
There may be other costs the tenant will be required to pay as well, such as building insurance costs, which will be part of the lease agreement.
A tenant will usually also be required to pay business rates, utility bills and a proportion of other common outgoings in relation to the premises and their businesses.
Maintenance issues and repairs
It is important that that the tenant has a clear understanding about his responsibility to repair any faults with the premises or the building. Sometimes tenants are asked to take out a full repairing obligation and before agreeing we would encourage a tenant to take advice. There have been cases where tenants have been required to pay for problems that were there prior to them taking the lease, so they should attempt to agree the limitations of their responsibility with landlord. Often a survey prior to entering into the lease is beneficial so the condition of the building is properly recorded.
Subletting and transfers
If a tenant wants to sub-let a part of the premises, they lease to someone else, they will have to agree this in advance and get the permission of the landlord. If a tenant has subletting in mind as a part of their business plan, it is best to agree this in principle in advance.
If a tenant wants to transfer the lease for any reason, again the permission of the landlord will be needed, and the landlord will usually be able to claim back any costs incurred due to drafting a revised lease to take this into account.
Don’t take shortcuts…
Taking out a lease for your business isn’t simple and shortcuts should be avoided. We have a great deal of experience helping businesses secure their premises for the future and also help landlords protect themselves and their investments. If you have any questions, please contact one of our expert property lawyers.