Taking on a new business lease?

The commercial property market seems to be picking up, and I have had a spate of instructions to act for tenants taking on new, short business leases.  Often, they come to me with “heads of terms” proposed by the landlord’s letting agent, and which they have meekly accepted as though carved in stone, missing the best opportunity to get the lease on favourable – or, at least, fair – terms.

See my blog post here NEW COMMERCIAL LEASES, which should give you a starting point from which to consider the proposed heads of terms (as they should be treated).

The main “bees in my bonnet” that I have are –

1. Legal costs : I believe each side should pay their own costs, end of story. Why should you contribute anything towards the landlord’s costs? If you are paying him a fair market rent for the property, neither side is doing the other any favours, and each should bear (and control) their own costs. Expecting tenants to pay the landlord’s costs is all too often merely a way of the landlord’s solicitors getting away with charging higher fees than their own client is prepared to pay – why should the tenant subsidise this?
2. Repairing obligations : These should reflect (a) the current condition of the premises and (b) the length of the lease period (and scope for renewal – see below). The lease being offered is a full repairing lease, meaning the tenant will be fully responsible for keeping the whole building in good condition, whatever condition it might be now.  This is fair enough if the building is currently in good condition throughout – is it? Only a full survey will tell) and if the tenant’s occupation is indefinite (ie: you have a statutory right of renewal – which the proposed heads of terms do not allow)
3. Security of tenure : Normally, a business tenant would have a statutory right to renew the lease – at the then market rent, but otherwise on the same terms as before – when it expires, as long as the tenant has been a good tenant, the landlord does not want to occupy the property for his own business and the landlord does not want to demolish and redevelop (or substantially refurbish). Under the proposed heads of agreement, this right is being excluded. In the circumstances I see, the only reason for doing this is to give the landlord an unfair advantage in renewal negotiations, forcing the tenant to pay a higher rent, rather than incurring the cost and inconvenience of a move.

In my view –
* each side should pay their own legal costs
* the tenant’s repairing obligations should be limited by a schedule of (current) condition, so the tenant does not have to repair existing defects, etc (this assumes the building is already weatherproof, of course) and
* the tenant’s statutory right of renewal should not be excluded, unless there is a good reason in the particular circumstances to do so

Of course, the letting agents (who are representing the landlord, don’t forget) will try to tell the prospective tenant that they will lose the chance to lease the property if they do not agree to the landlord’s terms. That may truly be the case, if there are other prospective tenants willing to agree to those terms, but I think at the very least you should decide what terms, overall, are right for you

I hope this general comment helps, but if there are any specific points you want to discuss with me, please do phone me: 01580 767117.

– Justin