Top tips for tenants taking new leases

Clear Advice Feels Better so before taking a lease of a commercial property, it is important for tenants to be aware of the following key points:

1. Lease in a company name: If possible, take the lease in a company name to avoid personal liability. For new companies, consider requesting at least one or two break clauses (depending on the lease length). This allows the tenant company to terminate the lease early if the business venture is unsuccessful, provided the correct procedure is followed. Be aware that the landlord may ask for increased rent in return and be mindful of conditions attached to break clauses that could render them invalid.
2. Assignment and guarantees: If you wish to exit the lease by assigning it (transferring it) to a third party, note that the landlord will likely require you to sign an “Authorised Guarantee Agreement.” This agreement requires you to guarantee the incoming tenant’s payment of rent and performance of lease obligations, which may nullify the benefit of assigning the lease.
3. Security for the lease: Ideally, security should be in the form of a three-month rent deposit, supported by a Rent Deposit Deed. If the landlord requests a personal guarantee instead, resist this to avoid personal liability and avoid providing both a rent deposit and a personal guarantee.
4. Repair liability: Ensure you understand your repair liability under the lease. Is it a “fully repairing and insuring” (FRI) lease? Under such a lease, you are responsible for all repair costs and insurance, including loss of annual rent insurance and buildings insurance. Try to negotiate a cap on any service charge payable before agreeing on the heads of terms. Unless the building is brand new, insist on a Schedule of Condition attached to the lease, documenting the property’s condition at the start of the lease to minimize repair liability and disputes at the end of the term. Also, ensure the lease requires you to “keep” rather than “put” the property in a good state of repair to avoid costly upgrades to sub-standard properties.
5. Lease expiration and renewal: Check whether the landlord intends to allow you to remain in the property after the lease term expires. Commercial tenants have an automatic right to remain and request a new lease on similar terms. However, landlords can remove these rights by following a specific procedure before the lease is entered into, involving the tenant swearing and signing a “Statutory Declaration” before an independent solicitor.
6. Registration and taxes: If the lease term is over seven years, it must be registered at the Land Registry, usually at the tenant’s expense. Additionally, be aware that Stamp Duty Land Tax may be payable on completion. This tax is calculated based on the lease length and rent level and must be paid within 14 days of completion. A tenant’s solicitor typically handles these matters.

For any new lease enquiries call Olivia on 01772 555 176