Pitfalls when entering into commercial leases

For anyone setting up a new business, finding premises from which to work will be high on the 'to do' list.

While it is possible for some small businesses to be run from home initially, the nature of others, such as retail companies, require the owner to lease out bricks and mortar.

And of course if your business is growing and you are about to start taking on employees, you'll need office space to accommodate them.

But leasing commercial property is not as easy as it sounds and there are plenty of pitfalls along the way, so it's important that you do your research before signing the commercial lease agreement.

Checking the commercial lease

A commercial lease agreement is a legally binding contract between the owner of the property and the occupier. If either party fails to comply with the terms of the agreement, court action may be taken.

It is essential that, as a prospective tenant, you fully understand what the clauses in a commercial lease and that you are completely happy with it.

If you are unsure of anything in the commercial lease, it may be a good idea to seek legal advice as a solicitor can look over the commercial lease and warn you of any potential problems before you sign.

Length of commercial lease

The length of the commercial lease is one of the most important things to consider, because locking yourself into a lengthy contract as a start-up company could leave you struggling if your business does not perform as well as you hoped.

Bigger firms with established business models may be able to take advantage of attractive rates on longer commercial leases, but smaller companies are advised to steer clear.

Lawpack publishes a short term lease agreement for those wanting a term of less than seven years. For a term of over seven years, our long term lease agreement is appropriate as the lease needs to be registered with the Land Registry.

Costs

Rent will probably be one of the first topics discussed with your landlord, but you'll also need to think about any additional costs that come with the lease of the property and that could have an impact on your cash flow.

For example, how much is gas and electricity likely to cost you and what business rates are applied to the property? Other potential costs could include service charges for services provided by the landlord and VAT on the rent.

Use of premises

Next, you need to make sure that the commercial lease allows you to use the premises in the way that you intend it to be used. This is an easy trap to fall into, especially if your business model is likely to change as the years progress.

For example, you might start out with a small retail outlet but be looking to add a cafe or a restaurant further down the line. Depending on the terms of the list, this may not be possible without renegotiating.

Of course, on some premises the local council will not grant permission for certain types of alterations, whether to the property itself or the business, so look into this first.

Similarly, you should check whether there are any restrictions on hours of use for the building, as depending on your business model you and your employees may need to access to the premises at night.

Repairs and redecoration

Once you get into your new premises, you may wish to refurbish or redecorate it, so again, make sure you are able to do so under the terms of the commercial lease.

Find out also who is responsible for the general maintenance of the property and what responsibilities you have as the tenant is something needs to be repaired. Where the landlord is responsible, you should reach an agreement over how quickly repairs should be carried out.

If the building is in a state of disrepair when you sign the commercial lease, make sure this is documented, as you could become liable for refurbishing it later on if you fail to point out any damage when you move in.

Using Lawpack's solicitor-approved lease agreement templates can help you to navigate the tricky area of business property rental and avoid the common pitfalls that have plagued many a business owner in the past.

Other information

Posted by Christopher Evans

Published on: August 25, 2010

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Short Term Lease Agreement

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Short term lease agreement template for a period of less than 7 years. Solicitor approved.

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