When it comes to legal matters, we’re the experts. If you’re looking into taking a lease for business purposes then this article will ensure you get the right lease for your business.
You could be taking your first Lease for business purposes or moving your business location. Either way, taking a Lease is a huge legal commitment.
If you are looking to take a new Lease for business purposes, then you should consider the following:
1. Landlord’s Agent
The agent advertising the Property is the Landlord’s Agent and will be employed by the Landlord to negotiate the best deal for the Landlord and not the Tenant.
As a Tenant you can appoint an Agent/Surveyor to negotiate the terms of the new Lease with the Landlord’s Agent on your behalf. A Commercial Agent/Surveyor is likely to have more knowledge and expertise of the appropriate lease terms for the Tenant.
There will be a fee, but it may be outweighed by the savings the Agent/Surveyor may be able to make for you in the long term.
2. Code for Business Leases
As a Tenant, we would advise you read the Code for Leasing Business Premises.
The Code aims to promote fairness in commercial Leases, and recognises a need to increase awareness of Property issues, especially among small businesses, ensuring that occupiers of business premises have the information necessary to negotiate the best deal available to them.
Further information can be found here
3. Think Long and Hard before agreeing to Personal Guarantees
If you have a limited company for your new business venture, take the Lease in the name of the limited company (the one that is going to trade from the leased Property).
A Landlord may agree to the Lease on the basis, that the directors of the company give Personal Guarantees. This goes against the concept of limited liability which the Tenant aims to achieve by having a limited liability company to trade through.
Rather than giving Personal Guarantees, if necessary offer the Landlord a Rent Deposit. This means depositing a sum of money with the Landlord (e.g. 3 months deposit) which is to be released back to the Tenant after a certain time period, i.e. usually, after the limited company has started trading and has a good trading record and has not missed any rent payments.
4. Break Clause
When in business, nothing is certain. A number of things could affect the trading of your business from economic factors to personal circumstances. Consider negotiating a break clause in the Lease so if things do not work, the Tenant has the right to end the Lease by giving notice to the Landlord (usually, this is 6 months).
Repairs are onerous responsibilities.
An ‘internal repairing’ obligation is not as onerous as a ‘full repairing’ obligation.
Under the term ‘full repairing’, a Tenant may be required to put the Property into a better condition than it is at the start of the Lease. This is an onerous responsibility and a Tenant should negotiate the repair condition to be limited by a Schedule of Condition.
Schedule of Condition
A Schedule of Condition is usually a set of photographs taken at the start of the Lease which is attached to the completed Lease. This means that Tenant will only have to give the Property back to the Landlord in the condition that it is at the start of the Lease and not in any better condition.
6. Service Charge
If the Tenant is taking a Lease of part of a building or estate, the Landlord is likely to want a service charge from the Tenant to contribute to the costs of maintaining and repairing the building or estate. This can be very onerous. A Tenant should ask for a ‘service charge cap’ i.e. a limit on the amount the Tenant can be asked to contribute to the service charge on annual basis. This will provide the Tenant with some certainty.
7. Stamp Duty
There is a common misconception that Leases do not attract stamp duty, but sometimes they do.
Depending on the rent and length of the Lease, one of the following will apply:
- The transaction is notifiable to HMRC, but no Stamp Duty is payable.
- The transaction is notifiable to HMRC and Stamp Duty is payable.
- The transaction is NOT notifiable to HMRC and no Stamp Duty is payable.
If you failure to notify the transaction and/or pay the correct amount of Stamp Duty, the Tenant will have to pay a penalty charge and interest charge (as relevant to the transaction). The Tenant may also have difficulties enforcing or selling the Lease.
The above is by no means a complete checklist of items to consider when taking a Lease for business purposes.
Leases are long and complicated documents and a Tenant should take independent legal advice before signing a Lease.
Nelsons was founded in 1983 and has grown to become one of the largest law firms in the East Midlands with offices in Derby, Leicester and Nottingham. Visit their website here