Often, in our rush to start up a new business or expand existing operations business owners don’t pay enough attention to the precise terms of commercial leases. It is unlikely to be an area of expertise for many of us and often needs to be completed in a rush. So even though we know the landlord is unlikely to be doing us a favour we don’t always stop and think again.

Barnaby Heap, commercial property lawyer at Wellers’ London City office tells of the hidden dangers that lurk for the unwary and how easy it is to end up with a lease that can endanger your business.

Business ‘A’ recently contacted Wellers to request a last minute lease review to be conducted by the Wellers City office Property Department:

Business ‘A’ was taking out a lease on premises in a state of relative disrepair. Our lease checking service revealed the terms of the lease included a requirement at the end of the term for the tenants to put the premises in a good state of repair and condition even though they were not responsible for its condition at the outset of the lease.

This clause would have made Business ‘A’ liable for a claim by the landlord against the tenant’s covenant to put and keep the premises in a good state of repair and condition, this would have cost an estimated £150,000 – £250,000! Instead, a proposed fit-out and alterations were agreed and incorporated into the licence.

The licence also ensured that the tenant’s works and improvements would be disregarded at rent review. Had this not been the case the rent would have increased by a further 20%, costing Business ‘A’ a further estimated £20,000 per annum.

In short, what might have been regarded as a box ticking exercise could easily have put Business ‘A’ out of business. This is a risk that you will want to avoid.

What to look out for

Wellers is able to assist businesses in relation to the negotiation of the Heads of Terms, explaining to you, as a tenant the implications of a whole range of terms and we can certainly assist with the negotiation.

  • Repairing obligation
  • Alienation (the ability to assign or underlet)
  • Alterations
  • Proposed user clause
  • Break clauses
  • Insurance (and damage to the property by insured risks and how the lease can be terminated)
  • Service charge issues
  • Rent reviews
  • Rights to be included (car parking or bike spaces, use of gym or canteen, right to access common areas).

If you could benefit from professional advice before signing a commercial lease please contact Barnaby on 020 7481 2422 or email Barnaby.heap@wellerslawgroup.com

Our lease checking service will help you end up with more “tenant friendly” Heads of Terms and avoid an onerous property contract which it could be very difficult to extract yourself from.