Tenants often seeking a business opportunity will often look to lease properties or a building and will involve commercial leases.
However, as someone taking a new commercial lease there are number of matters Tenants should be aware of.
Length of The Commercial Lease
Tenants should consider the length of the commercial lease they are entering into. The average commercial lease is 5 years. Tenants should consider whether this is adequate for their needs, is this too short or too long and determine whether there is any room for negotiation.
Rent is a factor in Tenants entering into commercial leases and landlords will often want to increase this at any time. Landlords have 2 options available to them, they can increase rent on the basis of a ‘Market Based Review’. This is based on an Open Market Review and what other similar premises are being rented at. Of course this method increasing rent is advantageous to the landlord as it means higher rent and is the most commonly used method of increasing rent.
The second option is based on a ‘Retail Price Index’ this option is not based on the value of the property but on set a set index. It is an option that is less favourable to Landlords and is rarely used.
Tenants should ensure that premises are in a good state of repair prior to moving in. The reason for this is that there may already be terms which will require a tenant to keep the property in a good state of repair. The tenant will then be required to bring up to repair anything that is in a state of disrepair.
As time goes on business expand and the need for alterations becomes necessary for example increase space inside or install signs outside. This can often require the consent of the landlord which can become difficult if many alterations are needed. Tenants should consider whether their lease gives them the ability to make alternations without the need to obtain the landlord’s consent.
Selling Your Commercial Lease
Sometimes a change is necessary for a Tenant and it may be that have a lease on a premise which is outside of the city and are now looking to attract city interest and wish to move. Landlords may be reluctant to let Tenants particularly those of a good standing to sell their commercial lease. Tenants should consider whether they have the ability to sell and provide another equally reputable Tenant of good standing to take their place.
On occasion the business falter or wish to close their doors altogether, the only means Tenants will be able to do this is have a ‘Break Clause’. Having a simple break clause is not in itself enough. Often Landlords will stop Tenants from leaving until they have another suitable tenant and ensure that the existing Tenant has paid any outstanding rent, service charges and completed any necessary repairs.