Important Considerations When Signing Your First Commercial Property Lease

Reaching milestones in your business is always a cause for celebration. One significant milestone for many business owners is when they secure their first commercial property lease. Whether it’s an office, retail outlet, or warehouse space, this step signals growth and progress.

Congratulations on finding the perfect space! Now, let’s make sure you secure it properly. As a professional commercial property lawyer with almost 20 years of experience, I’ve seen many avoidable issues that can impact business owners. Here are some essential pointers to consider:

1. Schedule of Conditions

When discussing the lease terms, ensure the landlord agrees to a Schedule of Condition. This document details the property’s condition when you take on the lease. It’s crucial because, at the end of the lease, the landlord expects the property to be returned in good condition, possibly better than when you initially occupied it. To protect yourself, make sure your Schedule of Condition is attached to the lease and referred to in the repair and decoration covenants.

2. Negotiate a Break Clause

Typical leases span around five years, but business landscapes can change unexpectedly. It’s wise to include a break clause within the first two or three years. This clause gives you the flexibility to end the lease if things don’t go according to plan. Remember, closing your business doesn’t automatically release you from lease obligations.

3. Avoid Personal Liability

Landlords often request personal guarantees or that the lease is in your name. This means you’re personally responsible for lease payments, even if your business is no longer operating. To protect yourself, negotiate a higher rent deposit or offer to pay a rent deposit in lieu of a personal guarantee. If the landlord won’t agree, request a release from the personal guarantee after two years of proven tenancy.

4. Ensure a Fair Market Rent

Before agreeing to the rent, research the fair market value for similar properties in the area. Speak to other agents and tenants to gauge what is considered reasonable. Don’t let the landlord overcharge you.

5. Ask About Other Charges

Prior to committing, review the service charge accounts for the past three years. Negotiate a capped amount for the service charge in the first years of the lease to avoid unexpected costs for building works.

Expanding your business is an exciting time, but it’s essential to conduct thorough research and due diligence before entering any lease agreement. By considering these important factors, you can protect your interests and set your business up for success.

Victoria Evans is the Head of Commercial Property at Jackson Lees.