Tips When Negotiating a Commercial Lease

Signing a commercial lease is a major step for any business. Davis Law specialises in helping businesses across Buckinghamshire navigate the complexities of commercial leases. We understand that the legal jargon can feel overwhelming, so our attorneys will provide practical tips for negotiating commercial leases. Our goal is to help you secure the best possible terms for your company.

Why Negotiating a Commercial Lease Matters

Many tenants assume that lease terms are fixed and non-negotiable. While landlords often present a standard lease agreement, many terms are open for discussion. Failing to negotiate can mean accepting unfavourable conditions that could harm your business later.

Negotiating allows you to tailor the lease to your specific needs. You can discuss rent amounts, lease length, renewal options, and repair responsibilities. It’s your opportunity to manage risks and build flexibility into your agreement.

Preparation Is Key

Can you negotiate rent? Yes, and you often should. A successful negotiation begins long before you sit down with a landlord. Thorough preparation will put you in a strong position to secure favourable terms.

Understand What Kind of Lease You’re Entering

Commercial leases vary. Some are “full-service” or “gross” leases, where the rent includes most operating costs. Others are “net leases,” where the tenant pays for expenses like property taxes, insurance, and maintenance in addition to rent. Understanding the type of lease offered is the first step toward knowing what you can negotiate.

Define Your Business Needs and Growth Projections

Think about your business’s current and future needs. How much space do you require right now? What about in five years? Consider your growth plans. A lease that feels right today might be too small tomorrow. You may want to negotiate an option to expand into adjacent spaces or the right to sublet if you have too much room.

Check Permissions, Use, and Planning

Ensure the property has the correct planning permission for your intended business activities. A retail shop has different requirements than an office or a restaurant. It’s your responsibility to check that your business operations are permitted under local planning laws and the lease itself. The use clause in the lease will define what activities are allowed on the premises.

Carry Out Due Diligence

Before signing anything, conduct thorough due diligence:

• Physical Inspection – Commission a professional survey to identify any structural problems or defects.
• Legal Checks – Investigate the property title to confirm the landlord’s ownership and check for any restrictions.
• Searches – Your solicitor should conduct searches with local authorities to uncover any issues that could affect the property, such as new road schemes or planning enforcement notices.

Review Relevant Legal and Tax Obligations

Be aware of your legal and tax obligations. For example, Stamp Duty Land Tax (SDLT) is often payable on new leases. You’ll also need to understand who’s responsible for business rates and whether the property is elected for VAT. These costs can be significant, so you must factor them into your budget.

Key Terms to Negotiate

Nearly every clause in a commercial lease can be negotiated. Focusing on the most important terms will help protect your business.

Lease Terms and Renewal

The lease term is its length. Shorter terms offer flexibility, while longer terms provide stability. If you want stability, consider negotiating for a longer lease with a tenant-only break clause, which allows you to end the lease early.

Also, consider your right to renew the lease when it expires. This is known as “security of tenure” under the Landlord and Tenant Act of 1954. Many commercial leases are contracted out of this act, meaning you have no automatic right to a new lease. You can try to negotiate this back in to secure your location long-term.

Break Clauses

A break clause gives you or the landlord the right to terminate the lease before it officially ends. If possible, negotiate a tenant-only break clause. Landlords often require strict compliance with all lease terms, which can make it difficult to exercise the break. Try to negotiate these conditions to be less restrictive.

Rent and Rent Review Mechanisms

Research the market rate for similar properties in the area to ensure you’re paying a fair price. You should also carefully examine the rent review clause, which determines how and when the rent will be adjusted. Common methods include reviews tied to the market rate or a fixed percentage increase. Negotiate for a method that’s fair and predictable.

Service Charges and Other Costs

If you’re leasing part of a larger building, you’ll likely have to pay a service charge to cover the cost of maintaining common areas like lobbies, car parks, and lifts. Request a detailed breakdown of what the service charge covers and negotiate a cap to prevent unpredictable increases. Other costs can include insurance premiums and legal fees, so clarify who’s responsible.

Repair and Maintenance Obligations

Repair obligations are a common source of disputes. Leases often require tenants to keep the property in “good and substantial repair and condition.” This can mean you’re responsible for improving the property’s condition, not just maintaining it. To avoid this, negotiate for a “schedule of condition,” which is a photographic record of the property’s state at the start of the lease, limiting your repair liability to that standard.

Demise/Physical Boundaries and Alterations

The lease should clearly define the “demise,” or the physical extent of the property you’re leasing. Does it include internal walls, external windows, or just the airspace within the unit? Clarifying this helps avoid disputes over repair responsibilities. Also, negotiate your right to make alterations. You’ll likely need the landlord’s consent, but you should ensure this content is “not to be unreasonably withheld or delayed.”

Assignment and Subleasing Rights

Your business needs might change. You may want to sell your business or downsize. The right to assign the lease to another business or sublet part of the space provides valuable flexibility. Landlords will want to control who occupies their property, but you can negotiate for reasonable conditions on assignment and subletting.

Risk Mitigation and Flexibility

A good lease allows your business to adapt to changing circumstances while protecting you from unforeseen risks.

• Early Exit and Break Clauses – A tenant-only break clause is a vital tool for flexibility.
• Special Clauses – Consider adding clauses specific to your business needs, such as an exclusivity clause that prevents the landlord from leasing another unit in the building to a direct competitor.
• Unexpected Liabilities – A schedule of condition can protect you from hefty repair bills at the end of the term. Capping service charges also limits your financial exposure.
• Insurance Obligations – Clarify your insurance obligations. You’ll typically be required to pay for the building’s insurance, but you should ensure the policy is comprehensive and the cost is reasonable.
• Exit Strategy – Always have an exit strategy. The ability to assign or sublet the lease is a key part of this.

Practical Tips and Negotiation Strategy

Davis Law is proud to provide our clients with tips for negotiating a commercial lease, including:

• Use Legal Advice – Commercial leases are complex legal documents. Always seek advice from a commercial property solicitor. They can identify risks and help you negotiate better terms.
• Don’t Rush – Take your time to review the lease and consider its implications. Rushing can lead to costly mistakes.
• Negotiate From a Position of Knowledge – Research the local market. Knowing the going rate for similar properties gives you a strong bargaining position.
• Be Clear in Writing – Once you agree on terms, ensure they’re clearly defined in the final lease document to avoid misunderstandings.
• Maintain Good Landlord Relations – Negotiation doesn’t have to be confrontational. A professional and reasonable approach can help you build a positive long-term relationship with your landlord.

Rely on the Professionals at Davis Law

The expert commercial property solicitors at Davis Law are here to help businesses in Buckinghamshire secure the best possible lease terms. We offer tips for negotiating a commercial lease that can save you money, avoid disputes, and create an agreement that allows your business to grow. Contact us today.

Frequently Asked Questions