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Negotiating the terms of your commercial lease

01.06.2015

For fast-growing businesses, being in the right commercial premises at the right time is an important consideration. But negotiating the terms of your property lease can represent a significant challenge to those experiencing rapid expansion.

Today’s commercial property market is highly competitive. Leases have become shorter, increasingly flexible and generally more favourable towards the needs of commercial tenants.

But before you secure your commercial premises, it’s important that you ask yourself the following: does this property offer sufficient space to meet the growing needs of my business? Are there any obligations under the lease terms that could potentially impede business growth?

One very visible consequence of a business that has grown quickly is the need for additional space. Out-growing your physical premises before the end of its lease can restrict business expansion, especially if your property can’t accommodate your growing needs. So, what are your options in these circumstances?

Depending upon the terms of your lease, one way to move on from your current premises is by exercising a break clause. A break clause gives you the right to terminate your lease part-way through the agreed lease period and is a particularly useful option for businesses anticipating a period of sustained growth which is likely to result in a need for larger premises.

But whilst a break clause is of huge benefit to a commercial tenant, a balance needs to be achieved which provides sufficient flexibility to the tenant whilst providing adequate protection for the landlord.

Given this, it’s becoming increasingly common for landlords to attach conditions to terms that allow the tenant to end their lease early, such as a requirement to comply with all covenants in the lease, including repairs to the property and payment of rent up until the termination date. You should also check your terms for any penalties you may incur for terminating your lease.

In the absence of a break clause, you should try to negotiate a compromise with your landlord to surrender your lease. Legislation itself doesn’t provide a tenant with the right to terminate a commercial lease early however; therefore your landlord is under no obligation to agree to your proposals.

Market conditions will determine how straightforward lease termination negotiations are. If the property market is strong, rent and occupancy rates are high and your landlord is likely to be able to secure a new tenant quickly, it’s clearly more likely that you’ll be able to agree a deal.

If market conditions are weak however, you may face financial penalties for terminating your lease early.

We always recommend taking advice from a commercial property solicitor from the start of your lease negotiations and always before you sign a commercial lease agreement. Commercial tenancy agreements need clarity and careful drafting to make sure that you don’t end up bound by unintended long-term obligations and hidden financial liabilities.

Further information

Here at Barcan+Kirby, Matthew Martin specialises in commercial services, ranging from business sales and acquisitions through to commercial and residential property development.

Matt also undertakes landlord and tenant work, with particular expertise in the retail and office markets.

For further information on commercial lease negotiation or to speak to Matt, call 0117 325 2929.

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