Things to consider when taking a Business Lease

Posted: 11th May 2015

You may already be in business and looking to move premises or expand, you may be setting up a business and looking to take a Lease for the first time for your business premises.

Whilst we appreciate you may wish to try to keep costs down to a bare minimum, we would recommend taking at least initial advice on the Lease prior to signing it.  Many people do not realise the meaning or effect of some of the clauses in the Leases that they sign until a dispute arises and it is pointed out to them by their Landlord!

There are also some general things which are important for you to consider whenever you take a new Lease (or even extend an existing Lease) for your premises.  These can be summarised as follows :-

1: Does the Landlord have appropriate Planning Permission in place for the use which you intend for the premises?

For example, if you wish to run a beauty salon in a building which what was formally a shop, you may need to ask your Landlord to apply for a change of use to the Local Council.

 2: Will you have to pay Stamp Duty Land Tax when you take the Lease?

It is important to check whether or not this is payable when you take a Lease as you normally have 30 days from the date when you complete your Lease to attend to payment.  If you fail to file a Stamp Duty Certificate and attend to payment in the appropriate timescale, you may have to pay a penalty charge and interest charges.

3: Does your Landlord own the property or have sufficient interest in the property to be able to grant you your Lease, and does your Landlord need permission from anyone to grant you the Lease?

This is an important question to ask and, for example if your Landlord himself has a Lease he may well need the consent of the freeholder to be able to grant the Lease to you.  If he doesn’t get that consent then your Lease may not be binding on the person who actually owns the property.  Further, if your Landlord has a mortgage or charge against the property with a Bank for example, then you should make sure he has got the permission of the Bank to grant you the Lease, otherwise in the event of a repossession, your Lease may not be binding on the Bank or charge holder.

You will need to instruct solicitors who can ask the appropriate questions and seek the appropriate documentation to check that everything is in place with your Landlord’s Title and make sure that all appropriate consents have been obtained.

4: Does your Lease need to be registered at the Land Registry?

If your Lease is for 7 years or more then it legally needs to be registered at the Land Registry.  If it is not registered at the Land Registry, then again it may not be binding on third parties.  Again you may require advice and assistance from a solicitor who would be able to apply to register your Lease for you, we can help you with this.

If your Lease is for more than 3 years you will be able to “note” it on your Landlord’s Title. This would give prospective purchasers or other prospective tenants notice of the fact that you have a Lease of the property.  Again this is something we can assist you with if you have already taken a Lease but want to register it or put notice of it at the Land Registry.

5: What are your obligations under the Lease ?

It is important to fully understand what your obligations are under the Lease.  For example, what are your repair obligations under the Lease?  It is important to make sure that these are not too onerous and (if necessary) that you are only required to keep the premises in the condition they are in when you take the Lease.  Many tenants who do not take legal advice find themselves signing up for more onerous obligations with respect to repairs than they otherwise would.  You should also check your obligations with regards to decoration, and any restrictions on your use of the premises which may affect you.

6: Do you know how much your service charge is going to be?

Again many tenants who do not take legal advice may be unclear as to how much their service charge would be, whether it is fixed or how much it will go up by.  This is something which we can assist you with upon reviewing the Lease, and it may well be something that you will have to raise with your Landlord prior to taking the Lease.

7: Do you have the right to carry on  as a tenant at the end of the fixed term?

Again this can be a difficult area for someone to understand when reading a Lease.  Basically the law says that unless the Lease says otherwise (and you have signed a notice confirming otherwise), business tenancies normally have the right to carry on in occupation provided they pay the rent and do not breach the terms of their Lease, at the end of their fixed term period.  There are special reasons in this case where the Landlord can ask you to leave and this includes things such as the Landlord wanting to go and use the premises himself or wishing to re-develop the premises.  In many Leases, a Landlord will ask you to contract out of this clause so that your Lease is for a fixed period only.  Again it is important to get advice on this if you have been asked to do this, so that you understand exactly what the implication is for you.  It may be that you want to have the option to stay on at the end of the term in which case it may be something to negotiate with your Landlord when agreeing the Heads of Terms.

8: Rent Review and Break Clauses

These are issues which a solicitor will look at when advising you on a Lease.  In particular many Leases have provision for rent review after a certain period of time within the term.  It is important to make sure that this is fair to you and in line with market trends.  We can advise you on this matter and give you some guidance as to what would be appropriate.  Normally Leases are initially drafted in favour of the Landlord so it is important to take advice on these clauses when you get your first draft of the Lease.

With regards to a break clause, often it is negotiated in the Heads of Terms that there is a Landlord or tenant (or tenant only) break part way through the Lease.  Again it is important to take advice to make sure you know exactly how much notice you have to give your Landlord if you wish to exercise that break clause.

We would always recommend that you take at least initial legal advice on a Lease prior to signing it.  It may be the case that on taking initial advice, issues arise which you need to clarify with your Landlord.  You may also decide upon taking initial advice that you wish to instruct us to carry on to act for you in the transaction.

We can give you a estimate for acting for you in the transaction from beginning to end on enquiry, or we can provide an initial fixed interview where we will sit with you for up to an hour and go through your Lease and the issues outlined above, and provide you with a letter of advice on the same.  Our fixed fees for this start from £100.00 plus VAT depending on the length of the Lease and the complexity of the transaction.

If you have a longer Lease and the rent is of a high value, we would normally recommend that you carry out property searches in the same way that you would when you are purchasing a property, to check that everything is in order with the premises.  We would also normally recommend that you raise enquiries of the Landlord in the standard form again to make sure that everything is in order and there is nothing outstanding which could have a negative impact on you as a tenant.

Please contact our Louise Adams on (01562) 822295 for further information.