Lease negotiations
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Lease negotiations can be done at set times as set out in the lease, such as break clauses, end dates and any other specifically specified times (even possibly rent reviews) and legal advice is always worth taking to set yourself up for success. Seek advice from a surveyor as well to ensure it is a fair deal. Money spent on a surveyor’s/legal fees will pay for itself over the lifespan of the lease and will ensure you get the best terms.
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Ensure you fully understand your responsibilities under the lease when negotiating heads of term and be prepared for the landlord to pass off as much as possible onto you as the tenant. You can say no if you are not happy and negotiate further, although there will obviously need to be compromises made.
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There are a few things that may be worth negotiating these into the terms of lease if not there already. Some handy hints on what you ideally want in a lease are as follows:
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- Security of tenure
- Asbestos obligations
- Uninsured risks
- Clarity on maintenance/service charges and tenant/landlord specific obligations
- ‘Upward only’ rent reviews
- Clarity on definitions of repairs/improvements and tenant/landlord specific obligations
- Force Majeure clause
- Exit clause
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Read more about each topic below:
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Reference to the Landlord and Tenant Act 1954. This act gives business tenants security of tenure – the right to renew the tenancy when it comes to an end. But some landlords try to exclude this clause from leases – make sure you check it is in there.
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Find out if there is asbestos in the building. Ask the landlord to provide a copy of the asbestos survey if required (mostly for buildings pre 1970). Ensure landlords take responsibility for any asbestos remediation or removal required for the duration of the lease.
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Ask for cover for uninsured risks, and what these might be. Uninsured risks are often left out of the lease, when they should be identified and addressed in terms of landlord/tenant obligations.
If the property is damaged by an insured risk, the tenant does not need to repair the damage, the landlord must reinstate and the rent under the lease is suspended until the property has been reinstated.
However, many leases are silent on what happens in the event that the property is damaged by a risk which the landlord is not insured for, this is referred to as uninsured risks. The most likely examples of uninsured damage are terrorism, subsidence and heave. If a property is damaged by an uninsured risk, the tenant will be responsible for remedying the damage caused under its repairing obligation, unless the repairing obligation in the lease is limited. In addition, the tenant will have to continue paying the rent, despite the building being damaged and incapable of occupation. If you can negotiate a clause where the landlord remains responsible for uninsured risks, this would be the best outcome as a tenant.
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What, if any, maintenance/service charges are and exactly what they cover. Also make a note of landlord obligations and ensure they are met. Make sure you don’t pay out for future maintenance that is covered by the lease!
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Where rent reviews are mentioned, fight for removal of any ‘upward only’ clause. This is a particularly difficult one to get landlords to agree to, but perhaps a cap on the maximum increase could be negotiated.
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‘Repairs and improvements’ can be tricky. Make sure you understand and can prove what would be considered a ‘repair’ and what would be considered an ‘improvement’. Having a Schedule of Condition drawn up to record the state of the building on occupancy, with photos, is a great resource for this. Ideally the tenant would only want to be responsible for repairs necessary due to their activity (i.e., damage caused) and sundries like lightbulbs, fire system servicing, emergency light tests, etc. The crucial part is not to agree to be responsible for any repairs or improvement that are necessary that are not as a direct impact of the tenancy or regular maintenance. The safest course of action to insist that your obligation as a tenant is limited to simply preserving the premises in their condition as at the date the tenant takes occupation of the premises.
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Try to negotiate for inclusion of a business closure, or Force Majeure clause where no payment would be required (suspension of rent) should there be a government mandate or incident occurs rendering the building inaccessible or restricting access, or not allowing the building to be used for the purposes of its current business.
This would ideally apply for other epidemic or pandemic diseases (seen recently with COVID-19), acts of terrorism, fire, flooding, extreme weather causing structural damage, and so on. This might fall under the uninsured risks to some extent mentioned above.
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Negotiate an exit clause for a way out for if you can’t afford rent increases. Or try to find a compromise, landlords usually prefer this to costs of chasing payments, legal action and recovering money from a company that is insolvent.
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Getting professional advice is key, along with reading and fully understanding your lease and your obligations.
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This is not an exhaustive list and we strongly recommend reading more about commercials leases. Guides such as the link below can really help here.
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