Appoint a good Commercial Property Agent. Take advice from a good local commercial property agent. An agent will advise on the market rent, represent you in your negotiations and advise as to what incentives such as a rent free period might be appropriate or whether you may be able to get a contribution towards some or all of your costs from the tenant.
Identity of the tenant. If the tenant is a company then your recourse for any breach will be against the company rather than any individual. Be particularly wary if the company is newly incorporated or separate from the tenant’s trading company. Irrespective of the nature of the tenant consider the tenant’s experience and assets and judge whether they are likely to breach, and if they breach then whether you are likely to encounter difficulties recovering your losses.
Security. Taking into account the above, consider whether a guarantee or rent deposit is necessary.
Term. A long lease means a bigger commitment from the tenant. If you require flexibility then you can incorporate a break clause giving you the right to terminate either on a rolling basis or at a fixed date or dates following a notice period.
Rent reviews. Market rents may fluctuate and, even if they don’t, the effect of inflation is likely to reduce the value of the rent over the term of a lease. Rent reviews will ensure that rent increases where appropriate and you should consider the type of rent review required. Reviews are often based on market rent or increased RPI, or there could be fixed staged increases.
Service charge. If the property is part of an estate or building then there might be common areas over which the tenant will have rights or shared structures that need to be maintained for the benefit of the property. It is common practice for the tenant to pay towards those via a service charge. Consider whether it is appropriate to obtain payments on account towards future potential service costs to build a sinking fund. If you are responsible for service charge in respect of the property then you should pass the cost on to the tenant in the lease.
Insurance. You should insure the building because it is your asset. It is common practice for the tenant to pay the costs of the insurance. Check that your insurance will cover you as a landlord and that loss of rent is insured.
Renewal rights. Consider whether you are prepared to allow the tenant to renew the lease on expiry. If not then it is necessary to declare that the relevant parts of the Landlord and Tenant Act 1954 are excluded and essential to ensure that the required statutory notice is served on the tenant once the draft lease is finalised and that the tenant swears and returns the necessary statutory declaration. If you require a landlord break clause it is essential that 1954 Act protection is excluded for your break to be effective.
Alterations. If the tenant is undertaking a fit out or other alterations to the property then you should obtain plans and specifications. A Licence for Alterations will govern the way in which the tenant must undertake the works and their obligations to remove the alterations if required on expiry. The tenant might request a rent free period in return for doing the works so you should consider whether the works will enhance the value of the property.
Consents. If you hold your property under a lease or if you have a mortgage then your landlord or lender may have certain requirements. Check those before you finalise terms with the tenants. If you grant a lease without a required consent then you risk loss of possession of the property or a claim for damages.
For further advice relating to commercial property leases or any disputes that arise with your tenants, get in touch with Farleys’ commercial property team on 0845 287 0939 or email us.