How to Secure the Right Commercial Lease Without Losing Flexibility
New Business Premises
How to Secure the Right Commercial Lease Without Losing Flexibility
If your business has grown and you are ready to take a lease of new premises, there are some things you should take into account when negotiating with your future landlord. You want the certainty of knowing you will be able to stay there long enough to get established, but without taking on too many long term financial obligations that could put a strain on the business or hamper expansion plans if you find yourself growing more rapidly than planned.
‘In the past, a business lease would usually be for at least 15 years, but in today’s market, even 5 years can feel like a big commitment,’ explains says Kimat Singh, head of the commercial team with Kerseys Solicitors. ‘You may be able to get a lease with a statutory right to renew, or your landlord may insist on the flexibility of a fixed term. You may be offered a lower rent if you are prepared to commit to a longer lease, but your landlord might want a right to end the lease early if they want to redevelop.’
Talking to an experienced commercial property lawyer early on will help you understand all your options and make the right decision for your business.
Kimat outlines the key considerations as you aim to balance security of tenure with flexibility for your business.
Your rights and obligations
However long your lease is, you will have some fundamental rights under it. Your right to quiet enjoyment means that your landlord must allow you to occupy and use the premises for the purpose allowed by the lease and must not interfere or stop you doing so. You will also be entitled to exclusive possession, which means you have the right to keep everyone else, including your landlord, out of the premises let to you.
These rights will be qualified by express terms in the lease and your landlord will typically have rights to enter in specific circumstances. For example, to inspect the property or to enter and repossess the premises if you are in breach of any of your obligations under the lease and have not put things right when asked to do so.
When you take a new lease, it is vital to remember that your obligations extend for the whole term you have signed up for. Unless there are specific provisions in the lease, you cannot hand back the keys and walk away early if you change your mind or your business does not thrive in the way you had hoped.
Building in flexibility
With this in mind, you should talk to your solicitor about ways to retain some flexibility. You may be able to agree a short lease, perhaps as a way to test whether a new location works for your business. The obvious advantage is that you are free to move on at the end of the lease if you need to, but there can be disadvantages. Landlords may offer short term leases in premises they hope to redevelop. This enables them to keep an income stream and avoid paying business rates while they get planning permission and negotiate vacant possession with other occupiers. That could make it difficult for you to extend your lease if you decide you want to. If your business requires a specific fit out for your premises, you may need a longer term to justify the outlay.
If you want a longer lease term, bear in mind that as well as the rent you agree to when the lease is granted you are also committing to paying service charges and insurance costs and that there will probably be a rent review during the term, which could increase the rent. Your solicitor may be able to negotiate a right for you to break the lease after the first few years. Your landlord may price this differently, charging a higher rent for a lease with a break than for one without, so it is question of balancing cost against flexibility.
Security of tenure
The other big question is whether you get a lease with security of tenure under the Landlord and Tenant Act 1954 or one which is ‘contracted out’. If you have security of tenure, your lease will automatically continue if you are still in business occupation at the end of the contractual term and you will have the right to apply for a new lease on broadly the same terms. Your landlord does have rights to object but only on specific grounds, typically that they intend to redevelop and need vacant possession. You do not have to take a new lease, so as tenant you have the most flexibility with a 1954 Act protected tenancy.
Lease renewal negotiations can be long and expensive and many landlords want to keep their options open by offering only contracted out leases. This means that the landlord serves a notice and you as tenant make a formal declaration agreeing that the lease will not have 1954 Act protection. The Law Commission has consulted on changes to this process, but it seems that the current system is likely to stay. If your lease is contracted out, you have no right to remain in the premises when the contractual term ends. In practice, you may be able to negotiate a new lease but your landlord may have a stronger bargaining position than if you had 1954 Act protection.
The landlord’s perspective
In deciding whether to offer you a longer term or a lease with 1954 Act protection, any potential landlord will look at the financial track record of your business. If you are taking on more onerous financial obligations, you should be prepared to offer a guarantor. This will reassure the landlord that there is someone else they can look to if your business is not able to pay the rent and other expenses.
The landlord’s own plans for the property are also significant. If you have to accept a shorter term because the landlord plans to redevelop or carry out significant refurbishment works, you may find that there is still some flexibility as you approach the end of your tenancy. If the landlord is not yet ready to go ahead or their plans have changed, you may be able to take a further lease of the same premises. This might be done as a reversionary lease, which you sign and complete before your current lease ends, guaranteeing you a seamless transition into your new tenancy as soon as the current lease ends.
How we can help
Flexibility often appeals to landlords as well as tenants, so it is always worth exploring all the options that may be open to you. Our experienced commercial property team can guide you and your business through this process, from your initial discussions through to completing your new lease. For further information, please contact a member of our commercial team at:-
Kerseys Solicitors in Ipswich at [email protected] on telephone 01473 213311 or
Kerseys Solicitors in Felixstowe at [email protected] on 01394 834557 or
Kerseys Solicitors in Woodbridge at [email protected] on 01394 813732 or
Kerseys Solicitors in Colchester at [email protected] on 01206 584584 or
Kerseys Solicitors in Stowmarket at [email protected] on 01449 613631 or
visit our web site and click “Call Me Back” where one of our commercial property solicitors will be happy to contact you at a time that is convenient to you.
