Starting a new business may be difficult, with various obstacles to overcome to guarantee a seamless transition from a developing corporation to a successful, lucrative enterprise. Getting your first commercial space may be a crucial part of this process, with its own set of hurdles and roadblocks.
Taking up commercial space is an exciting move for any company, but it’s all too simple to make errors that will cost the company money in the long run. Not understanding how to negotiate a commercial lease may be unpleasant for any company owner. However, with the correct guidance, entrepreneurs may avoid typical traps and get a contract that is suited for their company, complete with the required precautions for a high-risk start-up:
#1 – Do your research and avoid making rash conclusions.
The first step is to choose which property is best for your company — there are some factors to consider, some of which are more apparent than others. It’s important talking to any other occupants about their experience, in addition to location and square footage. We often interact with company owners who have neglected to go beyond the facade and the facts they’ve been given – you may be saving money in the long run by doing so.
#2 – Agree on a complete list of conditions.
The agent will assist you in negotiating a business lease after a property has been found.Negotiating a set of “terms of reference” (a.k.a. “heads of terms”)document created at the start of a transaction stating the conditions agreed upon by the parties). It provides you with the chance to get the best bargain possible. It’s critical to consider any special needs you have at this stage since it will be much more difficult to negotiate extra concessions after the agreements have been finalized and attorneys have been hired.
#3 – Decide who will take over the new lease.
The organization that signs the new lease will be responsible for all related tenant responsibilities, including rent, service charges, and supplementary payments, as well as any dilapidations and other issues. With this in mind, you should evaluate whether to accept the lease in the name of a newly formed limited company rather than your name, as a sole trader would. As a result, you will not be held personally accountable for such responsibilities.
#4 – Advocate for a rent-free time or a reasonable rent incentive.
Tenants may typically negotiate a rent-free time or corresponding rent incentive (for example, a period when they will pay “half rent”) in place of having to fit out the house, depending on the property’s attractiveness, levels of demand, and current market trends.
Your instructed agent will advise on the chances of obtaining such an incentive. However, it is worth asking — you want to avoid paying rent while you are still setting up the property if as all possible.
#5 – Flexibility, termination, and negotiating skills
You have no way of predicting the course your new firm will go as a start-up. You may discover that your company expands fast, necessitating larger premises to accommodate this expansion. On the other hand, you may discover that things aren’t going so well and that you no longer need as much room or want to end the leasing entirely. As a result, it’s critical to have as much flexibility as possible. Try to negotiate a tenant-only break right at a specified point in the lease termfor (For instance, after three years of a five-year lease term) or, better yet, after three years of a five-year lease term) yet, after three years of a five-year lease term) yet, after three years of a five-year lease term)yet, a rolling break right,which permits you to stop using it at any moment. a set date.
It’s also crucial to think about how you’re allowed to “handle” the lease. If the property is theoretically divisible, it is highly recommended that you attempt to secure the option to sublease a portion of it to a third-party tenant, allowing you to “hive off” a portion of the unit and recoup some of your liabilities.
#6 – Take into account fixing liabilities and safeguarding against onerous commitments.
You must ensure that you are not signing a lease with an excessively high repairing obligation. To guard against this, always strive to agree on a schedule of conditions added to the lease if the property is not in full working order. This displays the property’s condition of repair when you sign your lease, along with a lease provision that states you’re solely responsible for restoring the property to the state of repair shown on the schedule.
#7 – When making changes, keep reinstatement in mind.
Typically, commercial leases allow tenants to make non-structural internal alterations with the landlord’s permission, and they frequently allow the erection of internal partitioning without any permission at all. It’s critical to make sure that, when fit-out work is necessary to operate from the premises, the landlord’s approval is secured as part of the original transaction and that you don’t wind up paying for the landlord’s legal expenses in creating a license to prove such agreement.
Always keep in mind that when your lease expires, your landlord will most likely require you to re-enter the premises. This is especially essential to remember if the work is considerable since removal will be at your expense.
#8 – Try to agree on a cap on additional fees.
For example, if you are leasing a multi-unit building, there will certainly be common spaces, and you will almost certainly be obliged to pay the cost of upkeep and insurance. If possible, try to cap such contributions at a fixed amount so that you know your liability will not exceed that amount. As a new firm, it’s critical to maintain a tight grip on expenses, and you’ll want to prevent any unexpectedly significant liabilities.
#9 – Be wary of the SDLT and other post-completion fees.
It’s conceivable that the lease may result in a stamp duty land tax penalty, depending on the length of time and the yearly fee you agree on for the property. In addition, if your lease is for more than seven years, it must be registered with the Land Registry, for which a fee must be paid. As a result, you must get counsel on such liabilities so that you can account for them in your costs.
#10: Seek professional help.
The above ideas give you a good idea of the concerns to think about while negotiating a business lease. We would always advise you to retain the services of a cost-effective and competent business counsel who will ensure that these (and other) issues are addressed throughout the negotiating process and that your interests are appropriately safeguarded.