26 January 2021 | Business

Ten Things to Consider When Leasing a Commercial Property

When you’re thinking of leasing commercial property, the initial considerations that you have are quite varied.  Leasing involves making quite a long-term commitment, so ensuring that any property you’re interested in fits your needs both now and a few years down the line is essential.

One: Timescale

Perhaps the most important thing to consider is the amount of time it can take from discovery of the ideal premises to moving in day.  Agreeing a fairly straightforward lease can take around a month to complete, but occasionally things crop up that can cause frustrating delays that could push this out to several months.  It’s important to work back from the day you wish to commence the lease, factoring in additional time for hiccups, to make sure that you’re not stuck in a situation where your current lease expires long before your new lease commences.  While, of course, such a situation can be managed it could prove costly and disruptive to business continuity.

Leasing large commercial space for your own business, especially if your business provides flexible working-from-home options to employees might also lead to significant consequences, particularly as 2020 has demonstrated that people are equally, often more, effective when working at home, thus reducing a company’s requirements for office space.

Two: Fit for Purpose

Although leasing is generally for much shorter terms than buying, it’s important that the building is fit for purpose.  Not all commercial space is created equal, be those differences be in something tangible such as the square footage or the location, so things that are less apparent, such as whether there is room for your business to grow.

Three: Location

When deciding where to locate your business, transport links and nearby amenities are factors that are important to employee welfare.  The time spent commuting is incredibly valuable to an employee, so choosing a location that makes the commute more comfortable and shorter results in happier and more productive employees.

Facilities that are close to the premises are also an important factor that encourages employees to stay with the company.  Easy access to shops, gyms, green spaces, for example, all contribute to employee well-being.

Four: Duration of the Lease

The average term of a commercial lease in 2019 was just over six years, though generally a lease for three or five years is common.  While committing to a five year lease may seem simple, a lot can change in that time, so having the option to extend the lease before your current term ends is sensible.  Likewise, the option to terminate early without penalty by way of a break clause may come in useful should your business grow faster than expected, or shrink to manage changes in market, technology, and so on.

Five: Rent & Expenses

The cost of the rent is likely to be the largest single expense when leasing property, but the figure given by the landlord or letting agent isn’t necessarily the amount you would pay.  For example, over a five year lease you may think about offering lower rent in the early years, rising over the term of the lease as, hopefully, your business grows.  This does introduce the risk that your later payments may become difficult to meet if growth doesn’t follow at the same rate.

Additionally, leasing commercial premises comes with other costs, such as business rates, service charges, insurance (which may including buildings cover as well as contents), utilities, and VAT.  Depending on the size of your business these could become quite significant additional unavoidable costs.

Six: Sub-letting

With the growth of your business in mind, it may be viable to commit to leasing a larger property than your current needs require, especially if you’ve found the Holy Grail of commercial space.  However, it may not be entirely good financial sense to take on such a property while not utilising the space, so sub-letting part of the space might ease the financial pressures until such a time that your company fills that space.

As the way we work, with increasing efforts to allow people to work from home, many office tenants, for example, my find that they have spare capacity, with desk space going unused.  The growth in services such as WeWork, whereby freelancers can rent a desk by the day, has led to the normalisation of hot-desking, particularly the technology and creative industries.  It may be possible, providing the terms of the lease permit, to sub-let desk space in a similar manner.  Similarly, it may be possible to sub-let retail space to other businesses, but this must be clarified in the terms of the lease.

Seven: The Right Impression

If it’s likely that your clients will visit your premises, it’s important to think about what impression they get when they arrive at the front door.  Technology companies, for example, might want to impress on people that they’re at the cutting edge of their field, using bright open spaces with modern fixtures and fittings.  A law firm, though, may want to give a different impression to their clients, with a more traditional appearance.

Eight: Use your head

While viewing properties it can be easy to be awed by the location, appearance, features, facilities and so on, and this awe can skew one’s thinking.  It’s important to take time to rationalise one’s thoughts, rather than be led by the excitement in one’s heart.

Nine: Making Good/Repairs

It’s standard practice for a commercial lease to require that the tenant maintains and repairs the building, and keeps it in a good state of decoration.  This often applies even if the building wasn’t in good condition when the lease commenced, and may require the maintenance of parts of the building that one would not normally see, such as the roof.  It’s imperative that you undertake a thorough review of the building before committing to a lease, perhaps also engaging the services of a surveyor if your budget allows.

Any damage caused to the building, whether accidental or deliberate (wall fixings, for example) will often fall to the tenant to repair at the end of the lease.

Ten: Schedule of Condition

You should have a Schedule of Condition drawn up at the commencement of the lease, so that both parties agree upon the condition that the building should be returned to at the termination of the lease.  Additionally, review the asbestos, fire, and gas safety surveys, make your own records of the state of the building – inside and outside – especially if you have a repairing lease.  It can be incredibly useful to take detailed photos of the entire property to ensure that you don’t get caught by costly dilapidations at the end of your lease term.  If a potential landlord is reluctant to share previous survey reports with you, you should either conduct your own or, perhaps, looks elsewhere for suitable premises.

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It is important to seek help with your lease negotiations to minimise your liabilities where possible. Legal wording can be ambiguous and it is easy to fall into traps over a lease that could lead to costly liabilities at a later date. Instructing a solicitor or surveyor at this point is a helpful way to minimise risk.  For more information, please contact Andy Williamson at andywilliamson@aughtonainsworth.com.

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