6 August 2020

Commercial Lease and What to Look out for Before you Sign it.

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A commercial lease is a legally binding agreement between the tenant and the landlord. The process of entering into a new lease should be carefully considered to avoid future problems. Whilst some matters are typically addressed for example rent payments, other matters may sometimes be overlooked.

Below are some of the things you should be looking out for before you sign and complete on your lease.

Authorised Use: The lease will specify the permitted use i.e. that the premises are to be used for a certain purpose, however you must check that the permitted use is also the authorised use under planning law.

Repair: You should instruct a surveyor to assess the state of repair of the commercial property or take photographs to ensure that you are not signing up for more onerous repairing obligations than you need to. We recommend that you prepare a schedule of conditions to append to the lease to avoid any problems at a later date and also limit your repairing obligations.

Break Clause: Flexibility is key for any growing business, and what suits your business needs today may not do so tomorrow. Ensure that there is a break clause included in your lease. This will give you the right to terminate your lease early, so long as you give sufficient notice in writing to your landlord. The conditions imposed on your ability to validly exercise a break clause are stringent, you should, therefore, try and limit these.

Rent Review: If there is a rent review clause in the lease, you should review any assumptions and disregards. You should aim to have disregarded things that will increase the value of the property, for example, any improvements you have made to the property as this will no doubt increase the rent when reviewed.

Assignment and Underletting: Often new tenants presume that they can assign (transfer/sell) their Lease as they please onto a new incoming Tenant. Leases can sometimes prohibit assignment or permit assignment but subject to the landlord’s consent. Even if you are able to assign/ transfer the Lease, you will usually continue to be responsible for the incoming tenant’s ability to comply with the terms of the lease. Sometimes the leases can also restrict your right to underlet. It is therefore important that you are fully aware of your rights to assign and underlet before taking on the lease.

Stamp Duty Land Tax: You may have to pay Stamp Duty Land Tax when you take a lease. The amount of Stamp Duty Land Tax payable will depend on the rent/premium and the length of the commercial lease.

Disclaimer:

The information in this blog is for general information purposes only and does not purport to be comprehensive or to provide legal advice. Whilst every effort is made to ensure the information and law is current as of the date of publication it should be stressed that, due to the passage of time, this does not necessarily reflect the present legal position. Connaught Law and authors accept no responsibility for loss which may arise from accessing or reliance on information contained in this blog. For formal advice on the current law please don’t hesitate to contact Connaught Law. Legal advice is only provided pursuant to a written agreement, identified as such, and signed by the client and by or on behalf of Connaught Law. 

About the Author

Kiran is a senior associate in the real estate/property department. She has over 17 years’ experience in dealing with all aspects of a residential and commercial property.

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