Commercial lease agreements - what to look out for before you sign!
Commercial leases can be a minefield for inexperienced business owners, which could result in them agreeing to a contract they don't fully understand. We highlight some of the key things to look out for before you sign.
The pandemic caused businesses to dramatically rethink how and where their employees work. Whilst many members of staff enjoyed ditching the time-consuming and costly commute, others couldn’t wait to get back in a more collaborative environment, away from pressures of home life and home-schooling! With the formal advice to work from home being dropped, the onus now rests on businesses to determine what the future of the workplace looks like.
This conundrum has left many employers in a state of limbo, not knowing if the current flexible, hybrid working model will continue and productivity will remain high, or whether Chancellor Rishi Sunak’s caution against allowing home working to become the norm will be heeded.
This uncertainty can be expensive too, especially if a business is leasing premises which it no longer needs, or is not making full use of. Hot desking or desk sharing on a rota basis is becoming much more common, meaning many businesses could look to make substantial cost savings by leasing smaller premises. It’s not just office-based businesses that could be looking to shake things up either - the pandemic has had a huge impact on all industries, and so whilst some could be looking to downsize, others may be looking to increase their square-footage whether that be in retail, leisure or industrial premises.
Finding a suitable premises may seem like the easy part of the equation as when it comes to negotiating or renegotiating a commercial lease, businesses can be entirely baffled by the legal terminology and jargon. This often means that many don’t fully understand what they are signing for and problems arise once they are locked in to the lease.
Whilst every commercial lease will have some specific terms and conditions, there are three areas that tend to cause the most confusion and potentially the most angst and financial loss if they are not fully understood:
- Dilapidations clauses in commercial leases
- Hidden costs in commercial lease agreements
- Rental reviews and break clauses in commercial leases
Other considerations for commercial tenants
Whilst these three areas are often the most ‘sticky’ when it comes to agreeing the contract in the first place or trying to extricate a business from a previous agreement, there are plenty of other factors that businesses should be aware of.
Some other things to look out for include:
- Land and Buildings Transaction Tax / Stamp Duty
- Subletting arrangements
- Class Use approved for the unit
- VAT being applicable or not to the rent
Many businesses do try to save money and go it alone when entering into a new commercial lease agreement but this short term gain can lead to longer term financial pain if they are trapped into a lease that is unsuitable for their business or that they can no longer afford.
For more information about how Austin Lafferty Solicitors can help tenants with commercial lease agreements, get in touch with our expert team of solicitors today.