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What to Look for in a Commercial Lease Agreement

16th February 2021

Even during these uncertain times, obtaining the commercial or industrial premises your business needs to fulfil its short and long term objectives is the key to planning for success. Whatever industry sector you serve, your commercial property will be a space where you can nurture staff, provide the products or services you are known for, and following the easing of Covid-19 restrictions, welcome and entertain customers and suppliers. 

Here at Rory Mack Associates, our commercial property estate agents specialise in helping businesses like you find the premises they need to succeed. Our portfolio of commercial properties is particularly comprehensive, and our commercial estate agency has consequently helped customers with varying budgets and requirements find the properties they’ve been searching for.

Our commercial estate agency services don’t end when you find the right property however. Our commercial property estate agents provide a long list of services to support you throughout the entire process. We can assist at every stage, including during the all-important step of negotiating a commercial lease agreement that works for you and your business. But what exactly should you look for in a commercial lease agreement?

The term of the lease

The term of your commercial lease should ultimately align with your business’ short and long term goals. If you plan to relocate or invest in your own commercial premises in the future, opting for a long-term lease now will not be in your best interests. Breaking, assigning or underletting your commercial lease after it has been signed is an expensive business so be sure to plan ahead with your business and commercial premises in mind.

The assignment (i.e. transfer or sale) or subletting of a lease is also not a given. In commercial lease agreements where transfers are permitted, you may be surprised to find that you will remain responsible for your new tenants even after the lease has been re-assigned. 

The permitted uses of the building

Many of the commercial and industrial premises our commercial estate agency represents have specific clauses regarding how the building can and can’t be used by a tenant. Paying close attention to the permitted uses of the building may seem pretty obvious but it’s vital, particularly if you see your business going in a different direction in the future.

Commercial premises used as restaurants for instance may not be able to be used as office space or as a collection point for food items that have been sold online.

The frequency of rent reviews

The vast majority of commercial lease agreements, especially those that are taken out for the long term, will be subject to rent reviews. Rent reviews tend to be held every three to five years, with the outcome of each review changing the amount of rent you pay. 

The open market rent review is the most common rent review type used by commercial landlords. As the name suggests, this review enables rent to be dictated by the market conditions being experienced at the time of the rent review. Market conditions may see your rent increase or remain the same.

As our commercial property estate agents will advise, negotiating a commercial lease agreement with fewer rent reviews is the best outcome for tenants. If the frequency of rent reviews is low, you’re less likely to face fluctuations in rent.

Your responsibilities for repairs and insurance

Most leases being handled by our commercial estate agency and others across the UK are known as ‘fully repairing and insuring leases’. This means that as a tenant you are responsible for undertaking repairs and paying insurance on the property.

When negotiating your commercial lease agreement, be sure to note the repair work you will be responsible for as outlined in your lease. Negotiating better repair clauses now will ensure landlord-tenant relationships and your finances don’t suffer later down the line, whilst making commercial lease contests less likely.

The energy efficiency standards of the building should be stipulated on the commercial lease agreement by law too. The stated rating may provide an indication of the likelihood of repairs to make the building more energy efficient and fit for purpose.

Your right to terminate

Whether this is the first commercial property you’re renting or one of many, it’s no doubt an exciting time for your growing business, which means you may not want to think about how you might get out of your commercial lease. The break clauses associated with the early termination of a tenancy however make for essential reading even at this stage. 

Break clauses are there to protect the landlord and the tenant. Break clauses can therefore be used by both parties to end the lease earlier than planned. Our commercial property estate agents recommend negotiating break clauses that provide some level of flexibility but also certainty for you and your business.

Our commercial property estate agents are ready and waiting to assist you in the next stage of business development. Contact our commercial estate agency today to discuss your requirements and discover a range of suitable commercial properties in Staffordshire, Cheshire and Shropshire.