Date 14 February 2011
Publication Independent Retail News Magazine
What practical advice can you offer me ahead of negotiating terms with a landlord on new premises and what can I do to protect myself in the Lease?
The Problem
I am looking to expand my business. I have found new premises which look suitable but I am not sure about the best way to go about negotiating with the Landlord. I want to ensure that I secure myself the best deal but how can I look as though I know what I am talking about?
The Law
A lease is a form of contract which sets out the rights and obligations of both the landlord and tenant. Invariably, as it is a landlord’s prerogative to draw up the lease, it is often heavily weighted in their favour. As a consequence, prospective tenants should seek specialist advice in respect of the lease and its terms before entering into a binding contract.
Expert Advice
You are right to want to ensure you are well informed. Before entering into any negotiation, arm yourself with as much information as you can on rents payable locally. An experienced surveyor with knowledge of the local market should be able to assist. Do also consider whether you require the rent to be fixed for the duration of the lease or whether you are amenable to the lease containing a rent review clause.
Once a basic rent has been agreed, you should enquire as to whether any service or maintenance charge is payable. If such charges do arise, you should try and ensure that your financial contribution is capped. This will enable you to budget more effectively and will also protect you against any unforeseen expenditure arising during the term of your lease.
You should seek clarification on the approximate cost of buildings insurance and whether the Landlord will be charging VAT on rent. Also consider whether any Stamp Duty Land Tax might be payable to HMRC upon completion of the lease. The tax payable is calculated by reference to the length of the lease and rent and in itself can present a substantial liability.
Where the lease is concerned, flexibility is key. You are contractually tied into the lease for its full duration and therefore you want to make sure that the document incorporates the flexibility you require. You should seek full rights to transfer or sublet the whole or part without any unduly onerous conditions. You may also wish to consider requesting a break option exercisable at an agreed future date.
One potential area for liability relates to the tenant’s repairing obligation. To minimise your liability, you should agree with your Landlord that the repairing obligation in the lease can be qualified by reference to a photographic schedule of condition. This means that the condition of the premises will be recorded when you take up occupation and when the lease comes to an end, you will not be required to put the property back into any better state of repair and condition than as evidenced by the schedule. Failure to do so could require you having to return the property into a better state of repair than when you took the premises on which could result in a substantial financial liability.
You should think about what, if any, security you are prepared to offer up. Often landlords will require rent deposits or personal guarantees. A rent deposit is favourable to giving any form of company or personal guarantee. You should seek the Landlords agreement to the rent deposit being returned to you after a fixed period or when a net profits test is satisfied.
Finally, you may need to fit out the new premises or carry out alterations. Therefore, consider whether landlord’s consent is required and be prepared to supply plans and drawings for the landlord’s approval.
This article was orginally published in Independent Retail News Magazine. Click here to be directed to the article.