Five tips for tenants negotiating a commercial lease

By Ian Liddle, partner at Farleys.

It can take a lot of time to secure the perfect home for your business, but the work isn’t over even when you’ve found the ideal premises.

Your lease is likely to be one of your business’ biggest outgoings, so it’s vital to negotiate favourable terms in your commercial lease agreement so that it doesn’t become a liability further down the line. With that in mind: Ensure your lease is within the Landlord and Tenant Act 1954. This means that at the end of the term you will have the right to renew the lease automatically when the old one expires and the landlord can only object on certain specified grounds. Ask for a rent-free period. Landlords are keen to get tenants into occupation and will frequently agree significant rent free periods to avoid having to pay business rates themselves. A rent free period at the start of a tenancy can help enormously with your cash flow, especially if you are a start-up and have very little money coming in initially. If you don’t ask, you don’t get! Consider a break clause (a right to end the lease early). This gives you flexibility in that although you might commit to a five year lease, you could bring it to an end on each anniversary of the term by giving the landlord an agreed period of notice. Think carefully about who is taking the lease. Ideally you should take it in a separate limited company rather than your own name, as a lease is very onerous obligation and can expose you to significant personal liability. Not all landlords will agree to this and may look for some security if you want to take the lease in the name of a limited company with little or no financial history. Carefully consider your repairing obligations. You should either try to limit your repairing obligation to looking after, say, the interior only, or, if you have to accept a responsibility to repair the inside and the outside of the building, limit it by reference to a Schedule of Condition. This is a record of the condition of the premises at the start of the lease, making it clear that you will keep the property in no worse repair than the condition it was in when you first acquired it.