Navigating a commercial lease is a daunting task that requires accuracy and expert knowledge. From understanding the terms and conditions to negotiating favourable terms, several factors need to be considered. This guide will break down the key components of a commercial lease to help grow your understanding and avoid the common pitfalls.
Identifying the Parties and the Premises
The first step in leasing a commercial property is to identify the parties involved. It may seem obvious but it is crucial to understand who is the landlord and who is the tenant when entering a contract and that the respective obligations are outlined. Additionally, clearly outlining the premises that will be leased, including common areas and exclusions, is essential to avoid misunderstandings further down the line.
Consider the length of the Lease
There is not a one size fits all policy to commercial leases as they range from short term to long term commitments. As a tenant it is vital to consider your business’ needs and potential for growth when negotiating the lease terms. Whilst a longer lease may provide stability, a shorter lease offers flexibility to leave when required but could be caveated with higher rental rates.
Ask for a Break Clause
A break clause allows either party to terminate the lease earlier than the contracted end point. As a tenant, negotiating a break clause can allow an exit strategy if your business needs change over the course of the lease. Be careful to review the break clause conditions including any notice periods and associated costs.
Beware of Hidden Costs
In addition to the base rent, commercial leases often come with additional costs that many tenants overlook. These include service charges, property taxes, maintenance fees and insurance premiums. Before signing the lease ensure you have fully accounted for all potential future costs and how they would impact your budget.
Assignment and Subletting
Understanding your rights regarding assignment and subletting is essential, especially if your business plans change during the lease term. Assignment allows you to transfer the lease to another party, while subletting allows you to lease part of the premises to a third party. However, landlords will often impose restrictions and require prior consent for assignment and subletting, so these areas need negotiating prior to signing the contract.
Additional Considerations
- Repairs and maintenance
- Use clause
- Renewal options
- Termination provisions
It is important that in a situation where you are contemplating entering a commercial lease that you seek legal advice to help you navigate through the process, as it requires careful consideration and negotiation to ensure a mutually beneficial agreement for both parties. By understanding the key components of a commercial lease tenants can be confident that the premises meet their business needs.
The contents of this post do not constitute legal advice and are provided for general information purposes only ■
