Commercial property leasing: How to make the perfect offer
It can often be a complicated and daunting task when offering on a commercial lease, particularly if you are a start-up or small business. There are a number of clauses which form an essential part of the negotiations between a landlord and tenant and it’s important to lay them on the table at the outset.
We have put together the following checklist to help business tenants construct an offer:
Rent: Provide confirmation of the level of rent you are prepared to offer per annum. The yearly rent is usually paid in quarterly or monthly instalments and is exclusive of business rates, service charge, VAT etc. If VAT is payable on rent, it can usually be claimed back if you are VAT registered but we advise to seek confirmation from a qualified financial advisor.
Lease Term: State what duration of lease you are looking to agree. For example, 5, 10, or 20 years and what date you would like the lease to start.
You will also need to confirm if you require the lease to be ‘inside or outside’ of the Landlord & Tenant Act 1954. If granted outside of the act, the lease will not be subject to automatic renewal rights and you may be required to sign a Statutory Declaration form in the presence of a solicitor to confirm you agree with this.
Break Clause: If you wish to include a break clause (which means you can potentially finish your lease sooner than the full term) then this should be specified at the outset. You will need to include when you would like the break clause to take effect and how much notice you are prepared to offer. The Landlord may also require a break clause but this is fairly uncommon.
Top tip: make calendar notes of when your break dates are and when you need to give notice.
Rent Reviews: Commercial property leases can run from a few months to many years, so for the lease to remain commercially viable, there should be some provision for the rent to be increased as and when appropriate. Generally, a landlord will want to ensure the rent review clause provides them with the power to increase the rent, and the tenant will want to ensure the rent cannot be increased by too much. Negotiation over these clauses is therefore essential as both parties have opposite objectives.
Rental incentives: If you are looking for a rent free or reduced rent period, you should include the details within your offer so this can be considered on the whole deal.
Top tip: The Landlord may be prepared to grant this in exchange for improvements / repairs made to the building by the new tenant.
Deposit: Most Landlords will require a financial deposit from the tenant which is usually a minimum of three months’ rent. In some circumstances the Landlord may require a higher deposit, particularly if the Tenant is a new start up business or cannot provide satisfactory trading accounts for three consecutive years or suitable references (see below).
References: In some cases, the Landlord may instruct the agent to undertake an online credit check before agreeing terms and/or may request a Bank, Landlord, or Trade reference.
Use of the Property / Change of Use: Please inform the agent about what you intend to use the property for. You may need to speak to the local authority planning department to check that the property has the correct commercial use for what you intend to use it for. You can usually find the use of a Building by checking online here or by speaking with the Local Authority.
Top tip: Aim to use a professional planning consultant and meet with the local planning office as soon as possible to check you plans are viable, also known as a Pre App.
Further Information: Along with the terms of your commercial offer, you will also need to submit background about your business, especially if you are a new start up. This may include a business plan but most importantly the Landlord will need to understand the full names and addresses of the person or people who will be on the lease and their financial status to ensure they are good for the commitment.
Top tip: the more information you can provide ‘up front’, the more likely the Landlord will take your offer seriously and deal with it promptly.
If you are looking for commercial premises to let and would like advice from our expert commercial sales and lettings team, please get in touch on 01903 201212 or email email@example.com.
Content accurate at time of publishing.