4 Key Questions to Ask Before You Sign a Commercial Lease

Finding commercial premises that suit your business needs can be like looking for a needle in a haystack, so when the right thing comes along it’s good if you can act fast. However, rushing the signing of the lease is never going to work in your favour. The premises you choose and the terms under which you occupy them can make or break your business, which makes careful consideration and confident negotiation your best tools for success.

Take advice from your solicitor who can help you negotiate with the landlord or agent. Often, there is some flexibility to accommodate your requirements, but the only way to find out is to ask.

1.    How much are your costs going to be?

You may have been told the headline figure, i.e. the monthly rent and upfront security / damage deposit (typically 3-6 months’ rent), and the exact dates when the funds are due, but are there any additional hidden costs you should be aware of? There may be a service charge for ongoing cleaning, maintenance & repair, communal heating or on-site security. It is imperative that you ask the landlord to give you an exact breakdown of ALL the costs, so that you can make an informed decision before you sign the lease and without running the risk of unpleasant financial surprises further down the line.

2.    What are your repairing obligations?

Commercial premises are often let on a full repairing and insuring (FRI) basis that typically fall into two parts: your obligation to keep the property in good repair throughout the term of the lease and to restore property to its pre-let condition at the end of the lease. The latter can be a sting in the tail unless steps are taken to minimise your risks of a potential dilapidations claim. Best practice suggests that a Schedule of Condition is prepared to record the state of the premises at the start of the tenancy, which will serve as a benchmark against which to measure any claim for compensation made by the landlord.

3.    Can you negotiate a short lease term?

The shorter the initial lease term, the more flexibility you have for your business. Things can change quickly – profits rise and fall and a cashflow impasse can easily leave your business struggling to operate. While a longer lease may give you more room to negotiate favourable terms and conditions, it is prudent not to take out a commercial lease longer than 10 years. Standard term leases of 3-5 years are a good compromise between short-term flexibility and longer-term predictability. Make sure that the terms include a guaranteed renewal clause in case you wish to remain.

4.    Can you insist on a break clause?

In the unfortunate event that your business may be struggling and you need to exit the premises and your lease liability early, a break clause will give you that option without breaking the original commercial lease agreement. In order to protect your finances at a most vulnerable time, you should insist on the inclusion of such a clause. That said, the right terms of conditions of the break clause are just as important. There’s no point having a break clause if the condition for enacting it is that you pay all the outstanding rent payments due in the lease!