12 Things to Consider Before Signing a Commercial Lease

Thinking of signing a commercial lease? Here are 12 key things to consider before signing a lease to ensure your business's success and avoid costly mistakes.

1. Different Types of Commercial Leases

When entering a commercial lease, it's essential to understand the different types available. The type of lease you choose can significantly affect your rights, responsibilities, and the overall costs associated with occupying or renting a commercial property.

Pro Tip: When selecting a commercial lease, focus on the total occupancy cost, not just the base rent, as expenses vary by lease type (e.g., gross, net, or percentage).

2. Lease Negotiations

Commercial lease negotiations are essential to ensure favourable terms, protect your business interests, and minimise financial risks over the lease term.

Pro Tip: Prioritise flexibility and must have a clear understanding of the lease terms & conditions.

3. Lease Terms and Duration

The commercial lease length is significantly important. Short leases offer flexibility, which is great for startups or growing businesses. Long leases provide stability and can keep rent low. Make sure renewal and ending options fit your business plans.

Pro Tip: Negotiate renewal terms upfront to avoid surprises at the end of your lease.

4. Rent Amount and Escalation Clauses

Know the base rent and any extra costs, such as taxes, insurance, or maintenance. Look for rent increase clauses explaining how and when rent will increase.

Ask Yourself: Can your business handle these costs if rent increases yearly?

5. Location and Accessibility

The right location is key for your business. Check if it's close to customers, suppliers, and employees. Think about parking, foot traffic, and public transport.

Remember: A prime location may cost more but could generate higher revenue.

6. Property Use and Zoning Laws

Make sure the lease lets you use the property as you plan. Check zoning laws to see if your business is allowed.

Example: Restaurants might need special permits for outdoor seating or selling alcohol.

7. Maintenance and Repair Responsibilities

Know who is responsible for repairs and maintenance. In some leases, like triple net leases, the tenant pays. In others, the landlord does.

Key Tip: Make sure you know who handles big repairs like HVAC or structural issues.

8. Subleasing and Assignment Options

Having the option to sublease or assign the lease can be a big help. Check if your lease lets you do this and under what conditions.

Why It Matters: Being able to sublease protects you from being stuck in a space you no longer need.

9. Exclusivity and Non-Compete Clauses

An exclusivity clause can prevent the landlord from renting nearby spaces to your competitors and non-compete clauses might limit your business activities.

Action Step: Negotiate clauses that protect your business interests without limiting growth.

10. Early Termination and Break Clauses

As a commercial property tenant or landlord, you may find yourself needing to terminate a lease agreement early. This is where a break clause can be advantageous.

A break clause is a provision within a commercial lease that allows either the landlord or the tenant to terminate the lease before the agreed-upon end date.

Early termination clauses can offer flexibility. They outline when the lease can end. But watch out for clauses that might harm your interests.

Beware: Break clauses let the landlord end the lease early without reason, affecting your business.

11. Security of Tenure

Security of tenure lets tenants renew their lease on similar terms at the end of the contract. This gives them stability if they want to stay in the property.

But some leases don't include this right. This means tenants must leave or talk to the landlord about a new deal at the lease's end.

Remember: It is important to check if security of tenure applies at the lease start. Without it, you can't renew when the lease ends.

12. Legal Review of the Lease

It's highly recommended to have a specialist commercial lease solicitor review the lease agreement. They can identify potential risks, hidden costs, and unfair terms while helping you negotiate better conditions.

Cost vs. Benefit: A solicitor's fee is a small price to pay compared to the financial risks of a poorly negotiated lease.

For assistance with drafting, reviewing, or negotiating a commercial lease, contact Moeen & Co. Solicitors at 0203 959 7755 to book a consultation today.