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What you should know before signing your new commercial property lease

Wednesday, October 23, 2013

Chris Mills FRICS shares his knowledge on commercial leases and makes the point that 'A commercial lease can be a minefield… early advice from a specialist surveyor can save you thousands of pounds.'

Six things you should know before signing your new commercial property lease

  1. The RENT is the headline cost, but that’s just the start.
  2. Most commercial leases favour the Landlord and assume the building is in good repair, but they rarely are.
  3. You’ll be responsible for repairing and maintaining the building and everything in it regardless of the state when you move in.
  4. When you leave you’ll have to redecorate inside and out and do lots of repairs.  You may even have to replace all the carpets.  And you’ll have to strip-out any alterations you’ve made even if you think they’re improvements.
  5. The cost of repairs, redecoration and reinstatement work can run into tens of thousands of pounds. And if you don’t comply, the Landlord can sue you for damages.  Even small claims can run to £10k - £20k.
  6. Lease terms on offer are rarely ‘cast in stone’.  There’s no such thing as a ‘Standard Lease’. The draft lease is a starting point.  It needs making specific for you and your building.

How a surveyor can help 

To protect your position a surveyor will inspect the property to find the main faults and check the draft lease for any unfair terms.  You don’t need a detailed survey and report on every minor defect at that stage, so why pay for one? You need to know if the property is worth pursuing and if there’s a deal to be done.
 
When your surveyor reports you might choose:

  • to proceed with the terms on offer
  • to walk away, or
  • to negotiate over the terms and the condition of the building

If you walk away at that stage your costs will be minimal. However, we usually find there’s a deal to be done.
 
A Landlord will often agree to improve his building to attract a new tenant; the more he spends the less your liability, as Tenant. For example:

We negotiated for the landlord to re-roof historic restaurant premises and repair crumbling walls.  That saved the Tenant over £10 000.

  • Our Preliminary Report identified perished gutters, serious damp and rotten windows in an iconic town centre building. 
  • A combination of revised lease terms and repairs by the Landlord reduced the Tenant’s potential liability by more than £50 000
  • When a Landlord claimed £115 000 from his Tenant at the end of a short lease on an old factory building we negotiated a settlement at £32 500.  With our pre-lease advice the cost could have been under £10k.

Before you sign-up:

  • a surveyor will review the draft lease
  • a surveyor will discuss your intentions for the building; we need to understand the needs of your business
  • then a surveyor will inspect the building.

You can come too so your surveyor can point-out the defects or discuss the lease and the building over photos in the office.
 
Your report will summarise the general condition and the principal defects and, with the lease terms in mind, you'll be recommend ways to reduce your liability.
 
Then your surveyor can work with your lawyer to negotiate revised terms with the Landlord.
 
You might think you can trust the Landlord or his ‘so helpful’ agent.  But when it comes to the crunch it’s what’s written down that counts.  And by the end of the term you might have a new landlord and any verbal agreements will be worthless.

Can’t I just use my lawyer to check my lease terms? 

Lawyers are fully trained in writing leases and negotiating terms from a legal point of view. However, they do not have the knowledge and experience of a professional chartered surveyor when it comes to understanding property, how best to use it and what can go wrong. We can give you invaluable advice on how to make your property work best for you.

Download the RICS Small Business Property Guide for comprehensive advice on common property decisions and actions you may need to take - from acquiring a lease to challenging a dilapidations claim – along with vital property-related issues such as valuations, planning permission and the business rates system.

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Chris Mills FRICS, is a Director at Barlow & Associates, Derby. The private practice is managed by three Chartered Surveyors each with over 30 years of experience. They provide their clients with the benefit of their experience in construction, the development of commercial property, building defects and commercial leases.