The critical items in a commercial office lease
If you are considering finding a new office for your business, don’t be put off by the complexity of negotiating a new commercial office lease. Although the commercial lease system in the UK is complex, below are some tips on how to make sense of the system and negotiate an office lease to suit your business.
It is well worth noting that negotiating an office lease is a two-way street between the landlord and the tenant. It is therefore important, as a tenant, to enter lease negotiations with a clear understanding of your requirements and not be afraid to ask for the things that are important to you. So, providing you understand the basic lease terms before entering into a negotiation, you should come away with a commercial lease agreement you are happy with.
Who do I negotiate with?
As a tenant, you will be fully represented by a property agent who will do all the negotiations on your behalf. There are many reasons for this:
- they are good negotiators and have experience negotiating leases for other businesses
- they know how to achieve favourable leasing options
- they have understanding of market averages in terms of rents, incentives, rent-frees and lease length
- they are paid to seek the right property AND negotiate on your behalf
With this in mind, it’s a good idea for prospective tenants to be clear about their requirements and discuss these with your property agent. It is also important to seek legal advice at an early stage before any negotiations for the new commercial lease take place.
How long should the lease term be?
There should be a choice of commercial lease terms offered which should include where appropriate, break rights and whether you want your lease to be protected or excluded from the Landlord and Tenant Act. Lease terms can vary from short-term lets of one or two years to longer terms of 15 years plus. If location is very important to you, you should consider a longer lease term and make sure you have a right to a new office lease when the term does eventually run out. Remember that choosing a longer commercial lease agreement mean you’ll pay higher stamp duty land tax.
Negotiating the amount of rent to pay
Landlords will usually require a rent review on any commercial lease terms which span a period longer than five years, or some landlords might seek to impose three-yearly rent reviews . As a tenant you should be looking for a longer period than this if possible. Landlords will also try to stipulate that the rent review is upwards only, but you should always be looking to negotiate upwards and downwards according to the market conditions at the time of the review, with perhaps an agreed minimum of the initial rent payable.
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