Top tips before entering into a Commercial Lease:
1. Consider the length of the term. The length of the term and the amount of the rent will dictate what, if any, Stamp Duty is also payable on the Lease.
2. Consider asking for breakclauses. For example, a six year Lease with a three year breakclause only involves the cost of setting up one Lease, but gives you the opportunity of getting out mid-term. The permutations of the length of the term and the breakclauses provided for can be whatever suits each transaction. There is no limitation. Breakclauses tend to tie in with rent reviews.
3. Tenants will usually only want a breakclause to be operable by the Tenant. Sometimes a Landlord will want it to be a reciprocal breakclause.
4. Be clear about repairing obligations.
Interior only means that the Tenant is responsible only for the interior maintenance, repair and decoration of the property, sometimes defined down to the paint finishes and wall, floor and ceiling coverings. This leaves the Landlord responsible for the repair and maintenance and structure of the building and the cost of it.
FRI means “full repairing and insuring”. This can either be proposed on the basis that the Tenant is responsible for carrying out the repair and maintenance of the fabric of the property (structural walls, floors, foundations, ceilings, roofs) and is responsible at any time during the tenancy, particularly towards the end of it for putting the property into perfect condition; or it may be that the Landlord deals with the maintenance and repair of the fabric of the building and re-charges the cost of doing so to the Tenant through some form of Service Charge. In either case this can be a significant expense, depending on the building, its condition and the way that the Landlord operates this.
5. Insurance is nearly always something that the Landlord arranges, but re-charges the cost of to the Tenant.
6. If a tenant will have obligations to maintain and repair, whether directly or through a Service Charge, they should consider having a survey of the property carried out to assess what their Service Charge liabilities might be during the course of the term of the Lease.
7. Consider a cap on the Service Charge, limiting it to a maximum sum per annum.
8. Consider security of tenure. In very general terms, the tenants of commercial properties are entitled to a renewal of their Lease on expiry of the term, on similar terms and conditions subject to a review of the market rent. A Landlord may require the Lease to be excluded from this security of tenure, by a process which involves the prospective Tenant agreeing to this before the Lease is entered into. If it is important to a tenant that their business will not necessarily have to relocate at the end of the term of the Lease, they may not want security of tenure to be excluded. Note, there are certain circumstances when a Landlord may be able to recover possession of the premises on expiration of the term even if security of tenure has not been formally excluded.