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Tahir's Tips: the laws on leasing

Lauretta Roberts
19 August 2015

The Industry's resident legal expert Tahir Basheer, talks you through the potential minefield of leasing business premises.

For many companies, your business premises will be one of your largest outgoings. But cost is not the only factor to take into account when choosing and negotiating your lease. Here, we look at some general things to consider.

Rent free period

Initial rent fee periods are often offered by landlords to entice you to enter the lease or to reward you for not exercising a break clause. The longer the lease the longer this should be. This is especially important if you need time to fit out the office space and have to pay rent on your old space during the move. Or if you are the first tenant on a new building, there is also an argument that you should get a longer rent free period as you are adding value to the landlord’s business by taking the first lease – as they will use your name to attract other tenants.

Building Services

It is crucial to make sure the services to your building are sufficient – especially internet connection. Many landlords overstate their internet connection because when other businesses move in they take up more bandwidth. We recently had a client believe the hype from their landlord that the internet connection was lightning fast; only to then find in practice it wasn’t what it was made out to be. As a result they had to agree an additional "wayleave agreement" to get permission to put in a new internet pipe into the building. This new agreement incurred additional legal costs – both theirs and their landlords which they had to pay as a condition of getting the permission. Permission to add a new internet pipe if necessary should be dealt with in the main lease.

Liabilities

Check your liabilities when the lease will end – landlords will typically want you to make good when you leave i.e. put the space in the condition you found it. This can be an expensive bill when you least need it and so only reasonable costs should be agreed if at all possible.

Rights

Check what rights you have over the common parts of the building (which you have to share with other tenants) – what costs do you need to contribute to and what rights do you have to use it e.g. to add your signage/branding.

Break Clauses

Most landlords will want to have the ability to cut the lease short if you fail to meet their conditions - most commonly paying rent on time. However, you should also try to get a break clause in your favour just in case the landlord and property do not meet your expectations.

Wider Obligations

Most commercial property is leasehold – meaning you are leasing from the freehold owner or another company that owns the ‘head lease’. It’s important to get disclosure on any restrictions that those rights owners may have. A short lease may just say ‘you agree to be bound by the restrictions of the head lease’ – without going through disclosure on that, you don’t know what you are agreeing.

Flexibility

Many companies lease property larger than they need so they have space to grow. You need to think what permissions you need if you want to have the flexibility of allowing other companies to rent desk space from you whilst you grow into your new space – although typically leases won’t allow this.

In summary you need to consider what your business needs are going to be now and in the future. Although the above is a good starting point, it is essential to get comprehensive advice from a property lawyer.

For more information on Industry member, Tahir, visit his personal partner page on the Sheridans website. To contact him directly, visit The Industry Directory, email [email protected] or telephone 020 7079 0103.

 

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