5 Key Points For Negotiating A New Commercial Lease
When a landlord and tenant try to settle upon terms for a new commercial lease, each party will have their own clear objectives. The landlord is interested in securing an income stream and seeking confidence that their property will be left in good condition at the end of the lease whereas the tenant will be looking for the freedom to run their business without interference and to have some flexibility if their needs change. A well-negotiated lease will recognise these different perspectives and strike a balance between them.
With the rebuilding of the economy post Pandemic, there is a greater understanding between tenants and landlords about the need to work together. Lease negotiation needn’t be a battle and an experienced commercial property lawyer can assist with securing the best deal.
There are a number of potential points of negotiation for a commercial lease, here we detail five important considerations;
- Break clauses
A new commercial lease is granted for a fixed period meaning you will not be able to end it early unless you have negotiated a break clause. With break clauses, you may be offered a one-off right to end the lease, which might be for example at the end of an agreed year of the term; or you might be able to negotiate a rolling break right, which you could use at various points during the lease.
The landlord may try to impose conditions which must be satisfied before you can break the lease, for example ensuring compliance with all of your obligations up to the break date, however your solicitor will work to limit this to paying any rent due and leaving the property empty.
- Rent holidays
When the UK went into national lockdown due to the Pandemic, many tenants were dismayed to find they were still obliged to pay rent, even though it was illegal for them to trade from their premises. As a direct result, many tenants now insist their leases provide for some sort of rent holiday if the business is forced to close due to any future pandemic. As this is still new, the terms being offered by landlords depends on how keen they are to let the property and how much they value they see in you as a potential tenant.
- Rent free periods
As an incentive to new tenants, landlords will often agree to a set rent-free period at the start of a new lease. The advantage of this being some financial breathing space for a business to get established in new premises, particularly if investment is also required for equipment and fitting out. In the current market, landlords are keen to secure good tenants, so it is well worth ensuring your solicitor pushes for the longest rent-free period possible.
- Right to transfer the lease or sublet the property
Most businesses want as much flexibility as possible, therefore if you no longer want or need to occupy the premises, it is beneficial to be able the ability to pass the lease on to someone else or sublet. Many leases do allow the tenant to transfer the lease to another business or to sub-let the premises, but only with the landlord’s express consent and will likely be accompanied by conditions. Your solicitor will work to limit the landlord’s conditions to for example being up to date with the rent, and the new tenant or subtenant being financially stable enough to take on the lease obligations. In some cases, it may be necessary to enter into a statutory guarantee that if the new tenant fails to meet the lease obligations, you will do so.
- Indemnity clause
A lease is like any contract; if you are in breach of your obligations, the landlord can sue you for damages. This however is time-consuming and expensive, so instead landlords prefer tenants to provide an indemnity. This means that as the tenant you are agreeing to pay for losses and expenses that the landlord may suffer as a result of your breach of contract, without the landlord having to go through Court to prove them. Therefore in order to protect yourself, if the landlord insists on including an indemnity clause, you should ensure your solicitor has negotiated express terms that the landlord must do all they can to minimise losses and give you the opportunity to put right any breach before you have to pay out.
Lease negotiations can break down and become slow and expensive if either landlord or tenant is too rigid in their approach. Our expert commercial lease solicitors can help you hone in on the key commercial issues quickly and get to work on negotiating the best deal for you, so you can get on with running a successful business from your new premises. Contact our team today on 0121 268 3208 or firstname.lastname@example.org for expert advice and assistance with all your commercial lease requirements.