5 things to remember when negotiating your commercial property lease

If you’re negotiating or renegotiating a lease on commercial property, there are ways to get a better (and greener) deal. Let’s find out more.

Things have changed in the commercial property industry. Where 25-30-year leases were commonplace, now 5-year terms (or less) are becoming the norm. It means that tenants have more bargaining power, but often, they don’t realise it. 

If you’re about to negotiate or renegotiate your commercial property lease, remember these five things and you may be able to obtain a more favourable deal. 

1 – Repairing liability

In the UK, tenants have traditionally been forced to accept that they’ll need to repair (and insure for the repairs) the premises at the end of the lease. This may have been sensible when 25-30-year leasers were standard, but if you’re only on a 5-year lease, it could be considered unreasonable to get you to pay for a big fix (e.g. a roof or flooring) when your tenancy ends.

When you take out your lease, ensure you get photographic evidence of the condition of the property. You can be liable for any defects you cause during your tenancy, but you shouldn’t be liable to fix anything that was there before you arrived. If you pay a service charge, you should also ask for your repairs liability to be capped annually.

2 – Removing alterations

Contracts typically require tenants to remove any alterations they made during their tenancy, leaving the premises as an empty shell. However, if the next tenants make similar alterations, it’s not great for the environment to create so much waste by scrapping one thing and replacing it with the same.

Landlords should take a more collaborative (and eco-friendly) approach to the transfer of tenancy. Unless the new tenants specifically request a shell, it may be best to leave the alterations as they are.

3 – Energy ratings

If you’re in Scotland, you need to know that while there is no restriction against granting leases for premises based on energy rating, some premises (over 1,000 sq. metres) may need to comply with an ‘Action Plan’ and carry out works on the building to make it more efficient. 

Remember that in the long run, the landlord will gain from this when it comes to renegotiating or re-leasing the tenancy, so don’t leave yourself liable for this cost.

4 – Improvements required by new legislation

Some tenants are telling their landlords that they will not accept liability for work required by new government legislation, arguing that it should be the landlord’s responsibility as leases are shorter. Examples could be replacing cladding on the building as required by post-Grenfell regulations.

While both sides need to follow the contract as the law requires, it’s a good idea to set out what you’ll both do if new laws come into force when you’re negotiating the new lease.

5 – Flexibility

Finally, some tenants may find the prospect of a 5-year lease too much of a commitment. Could you incorporate a break option into your contract? Break options should be conditional on rent being up to date and having a reasonable notice period. At the same time, landlords should not be able to exercise the break for minor dilapidation of the premises.

Other flexibility options include sub-letting the premises, as long as the sub-let can fulfil the existing tenant’s responsibilities. 

Why you need a solicitor

If you’re a tenant or prospective tenant looking to complete a new lease, you need an expert commercial property solicitor on your side. Many landlords aren’t aware of how the marketplace has changed, and you don’t want to be tied down to a contract that restricts you. At the same time, if you’re a landlord, your solicitor can help you create a lease that respects both sides and creates a win-win situation.

Your solicitor will examine your contracts, explain your options and, if necessary, take legal action in your interests. Don’t try to do everything yourself; get an expert in your corner.

Find out more from Couchman Hanson

At Couchman Hanson, our solicitors genuinely care about getting the best outcome for you. We’re highly professional, with ‘city’ level talent and experience, but also friendly and welcoming. Everything we do fits with our values of integrity, honesty and authenticity.

Call 01428 774756 or visit couchmanhanson.co.uk.