Company Transactions For SMEs: Top Tips For Negotiating New Lease Terms
The leasehold system is complicated and is traditionally weighted in favour of landlords. But with more commercial space available due to Covid 19 restrictions, tenants should take advantage and negotiate before agreeing Heads of terms for a new commercial lease. Take professional advice early on regarding the terms being offered.
HOW LONG A LEASE TERM DO I NEED?
- Terms can vary from say 2 years up to 20 years. If location is important eg for a shop or restaurant, negotiate for a longer term. Make sure that you get a protected business tenancy which will entitle you to claim a new lease on expiry of the term.
- Negotiate a break clause which could be linked to the rent review dates. Future trading conditions can be uncertain so you want a get out if there is a downture in trade.
- Landlords require periodic rent reviews. 5 yearly is usual and preferable for a tenant, rather than say every 3 or 4 years.
- Landlords usually want upward only rent reviews but try to negotiate upward or downward according to the market rental at the time, or perhaps agree to an inflationary increase only.
- Consider negotiating a turnover rent based upon a percentage of profits earned in the premises. That way if trading conditions are poor, you don’t have to pay a market rent and if they are good, both landlord and tenant benefit. More landlords are willing to agree this due to the difficulty in letting commercial space today.
REPAIRS AND SERVICE CHARGES
- Be careful before agreeing a ‘full repairing and insuring lease’. The costs of repairs to put a building into good repair can be extremely high.
- Try to limit your repairing obligations to keeping the premises in no worse condition that they now are.
- Negotiate a cap on service charges to exclude paying for major works or structural repairs. Paying for normal maintenance and repairs should be sufficient.
Consider negotiating the right to sublet either the whole or some part of the premises in future. You may want to sublet at a lower rent than you pay if the market has dropped and you need to defray some of the rental costs.
If you may need to carry out alterations, negotiate a flexible clause in the lease permitting this with landlord’s consent not to be unreasonably withheld. If you will only be erecting internal removable partitions then the lease should permit this without the need for landlord’s consent.
The needs of each tenant are different so try to reach agreement on any other points when negotiating the initial terms of the lease.
Our team of expert commercial solicitors will be pleased to advise. Please contact Alan Zeffertt if you would like assistance:
T: 020 7940 3950
*Disclaimer: The information on the Anthony Gold website is for general information only and reflects the position at the date of publication. It does not constitute legal advice and should not be treated as such. It is provided without any representations or warranties, express or implied.*