Five top tips for negotiating a new commercial lease

Negotiating a new commercial lease

Having found your perfect business premises, it is essential to negotiate the best possible terms for your commercial lease agreement. Here are some top tips from commercial property lawyer Jennifer McGowan.

1. Be prepared to negotiate

The lease agreement you are presented with will almost certainly favour the landlord. He or she will expect to negotiate and a tenant’s failure to do so will be a welcome surprise for the landlord. The strength of your negotiating hand will hinge on the current rental market and the availability of similar premises in the locality.

2. Request a rent-free period 

A rent-free period at the start of a tenancy is a huge boost to your cash flow. Landlords keen to get tenants into their premises will often agree to rent-free periods so they don’t have to pay business rates themselves. Also, if repairs need to be done, but can’t be completed before you move in, it’s reasonable to ask for a rent-free period by way of compensation.

3. Agree on the length of the lease

With an expanding business, security of tenure becomes increasingly important if you have found an ideal location. Leases covered by the Landlord and Tenant Act (1954) give the right to renew the lease automatically when the previous one expires, while restricting the landlord’s ability to object. If you want a short-term lease, you might not want Landlord and Tenant Act protection, but in any event you should take legal advice before giving up security of tenure.

4. Get a break clause

A break clause gives you a right to end the lease early and represents valuable flexibility – for example, you could opt to end the lease two years into a five-year term, provided you give the landlord appropriate notice. Break clauses are a great way for tenant businesses to stay competitive by upscaling or downsizing, depending on market conditions and commercial performance.

5. Think carefully about any repairing obligation

If your lease contains a full repairing and insuring obligation, you should negotiate to remove or limit this. Being responsible for repairs can be a huge financial burden because it means keeping the property in good repair during your occupancy. You should try to limit your repairing obligation to looking after the interior. Alternatively, you could negotiate an agreement to keep the property in no worse repair than when you moved in, though a lot hinges on the particular wording in the lease.

As always you should seek professional advice before entering into any commercial lease or agreement.