16 April 2019/ Tenant Guide

What do you need to know before you sign a traditional lease?

Signing a new lease is always a big moment, especially for a fledgling business. It’s a serious commitment, tying you to a place for years to come.

Which makes it all the more important to know exactly what you’re signing for before you put your name on the dotted line. Do you know when the next rent review is? What payment conditions is the landlord asking for? And if you do need to get out of the lease early, what sort of break clause is there?

We’ve prepared a few tips to help guide you through the process.

Keep eyes open for details 

Once you have found an office or retail unit or warehouse that suits you, in the right location, the right size and with good transport links, the next step is to take a closer look at the details of the property itself.

First of all, you need to know what commercial classification has been assigned to the building to make sure that it is suitable for your type of business. This should be obvious from the listing, but is worth checking. There are numerous classifications and sub-classifications. For example A1 covers most typical retail businesses, such as a clothes shop, a hairdresser, or a newsagent, while a B1 lease is assigned to commercial buildings apt for use as an office, studio or research facility.

224 Brick Lane London

Retail unit to let: 224 Brick Lane, London E1 6SA

Ensure you understand the terms and conditions

Even after all this, the important work is still ahead of you. The terms of the lease make all the difference, and need going over with a fine-toothed comb. The best way to do this with confidence is to hire a commercial property lawyer to unpack the complex legalese in the contract for you, so you don’t fall into any technical traps. There could be major advantages as well – for example you might be able to negotiate a rent-free period from your future landlord.

The rent is probably the first thing you’d look at. You will already have an idea in your mind about what you can afford, and for how long. But bear in mind that this can change – the lease will have details about the frequency of what’s known as a ‘rent review’, which invariably only goes one way, up. This is guaranteed if the lease contains an ‘upward only rent review’ clause.

There are still more crucial things to be clear about: landlords will have their own terms of payment conditions, and will expect something as a guarantee that a tenant will be able to honour their rent commitments, in the same way that a home-owner needs a guarantor. This varies, and you will need to know what you can offer.

You probably don’t want to think about a worst-case scenario where you need to get out of a contract, but it’s important you do prepare for this by studying what’s known as the ‘break clause’. And this works both ways: a break clause is also there to protect you from a property owner asking you to leave without a good reason.

Carel Business Centre

Industrial unit to let: Cartel Business Centre, Edinburgh Way, Harlow, Essex CM20 2TT

Look out for hidden costs

Where business often get a nasty surprise is when they look at the business rates. Rates should be well below your rental costs, but these can be out of sync. In some cases rates can be almost as much as rent, which some businesses simply can’t afford. Another cost that some people don’t think about until later is the service charge on a building – get a clear picture of this from the start.