As a landlord, it’s important to get the terms of the new lease right. These are the fundamental blueprints of the commercial relationship you will have with your tenant throughout the lease. For many landlords, you will have instructed your commercial agent to market the property for let, and they will negotiate and draw up the initial ‘Heads of Terms’ that we use to draw up the lease and any ancillary documents that may be required (e.g. rent deposits, licences, etc.).
But for some, you may have conducted negotiations directly. In those circumstances, you may be unsure what are the most important things to consider when negotiating. Though we can’t advise on the commercial negotiations themselves (that’s the role of a commercial agent), here are some pointers on the important areas we lawyers need to know about:
Rent
It goes without saying, you need to agree a rent with your tenant. That’s the whole point of the lease, right? But you should think about whether you are required to charge VAT on the rent, at what frequency you want to conduct rent reviews (if at all) and on what basis these reviews will be calculated. The tenant may request a rent-free period at the start of the lease if they need to fit the premises out before they can commence trading.
Term
The length of the lease is also fundamental. How long the lease should run is up to you and the tenant. Longer arrangements will of course guarantee income for a longer period, while shorter leases offer a good amount of flexibility for both parties to respond to market changes.
Landlord & Tenant Act 1954
Whether you contract in or contract out of the 1954 Act is also very important. See our blog for more information on this. If you are unsure at all, it really is best to speak to your lawyer first, to make sure you make the right choice.
Repairs
Most leases will stick to the universally accepted wording for repair covenants, but you should consider whether it makes sense to include a photographic schedule of condition. This might help both parties be clear about what repairs should be carried out during the term and, importantly, when it comes to the end of the lease and dilapidations.
Alienation and alterations
Give some thought to whether the tenant should be allowed to sub-let or sell the lease, and whether you will want to be notified of this taking place. After all, you will want to be sure who your tenant actually is (especially when rent payment is due!)
And for alterations, some tenants may find the property needs upgrading to be fit for their needs. It’s your building, so think about what alterations you are happy with, and which ones you think you would want to have the ability to stop.
Guarantors and rent deposits
You should consider the financial position of the tenant and whether they are likely to be able to afford to pay the rent they are committing to. Where you are in any doubt you should consider requesting additional security from your tenant by way of a guarantor and/or rent deposit.
This isn’t an exhaustive list by any means, and the unique features of your property might mean some more bespoke or specific considerations. Still, if you go into negotiations with the above points in mind, you’ll have a good starting block.
Greene & Greene’s Commercial Property team is able to assist in the acquisition, disposal or leasing of commercial properties and for further advice please contact James Southward by e-mail by phone on 01284 717522.
For more information on the services offered by Greene & Greene Solicitors please visit www.greene-greene.com and follow on Twitter @GreeneGreeneLaw.
This is only intended to be a summary and not specific legal advice.