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Introduction
An awareness of tenant-adverse terms in a commercial lease is invaluable in the modern business landscape. It allows you to avoid complex and expensive litigation, the cost of a feud between your business and your landlord and can see you wriggle out of onerous and pricey obligations under a property agreement.
It is an awareness that comes naturally to some, but which escapes others. For those who think that their understanding of terms in a lease could do with a tune up, we have written the below article. If, however, you want iron-clad, industry-specific knowledge, we recommend you instruct us directly in a matter.
Commercial Leases
How Long is Too Long?
Commercial leases can vary widely in terms of their length.
The length of time appropriate for your business will be dependent on a variety of factors such as: (1) the nature of your business, (2) expansion plans, (3) how long you have been in business, and (4) the purposes for which you wish to use the land. This list, however, is not exhaustive and certain bespoke circumstances may cause for some serious consideration regarding the length of the lease.
An example of how such variables can impact on the correct length of a lease for your business would be if you were a new company or entity just starting out, such as a haulier with three vehicles, renting a premise to use as an Operating Centre. If you expand to housing ten or fifteen vehicles, you want your lease to provide flexibility to move on, not tie you in to a long-standing contractual agreement which is no longer suitable. Therefore, a short-term lease would be more appropriate.
Time is Money
Be wary of the landlord who demands both a rent deposit and a personal guarantee from you as part of the commercial lease. One of the two may be appropriate but including both as requirements under a lease is far too onerous. From the perspective of a tenant, it may be more favourable that you pay a one-off, upfront rent deposit, instead of providing a lengthier guarantee that may bite later and put your personal assets (such as your home) at risk.
Another scenario that may impact on the figures involved in a commercial lease is where the agreement provides for rent reviews.
Tenants sometimes reject a review of a rent, where at the time of review the landlord is in breach of his obligations to maintain the property or cover some form of expense. In order to compromise in such an instance, it may be worth allowing for such a review in the contract, on the proviso that a landlord cannot benefit from a rent review, increasing the amount of rent, where the tenant has notified them that they are in repeated breach of their obligations and have failed to remedy this within a reasonable time.
It is also common to see a provision in a lease stating that the effect on rent of improvements made by the tenant will be ignored on review. This means that the landlord will not pay credence on review of the rent to the fact that the tenant has incurred expenditure in trying to improve the property.