Before you commit to a commercial lease, here's 7 things that Pratick, PPC's Chartered Building Surveyor thinks you should consider.
In the business world, a commercial lease agreement is significantly more complex than a residential one which can make it easy for some landlords to hide costly clauses or make excessive demands on you as the tenant.
Now I’m not saying you’d be as naïve as we were way back then but it does demonstrate how important it is to do your research and familiarise yourself with the leasing process before signing on the dotted line. Doing so also empowers you to have better conversations with your landlord upfront so you can get the best deal for your business in the long term.
So, whether you’re looking for new commercial premises or your existing contract is coming up for renewal, here’s my ‘7 things to consider before you sign your next commercial lease agreement’.
1. Right Up Your Street
OK, OK, so you’re leasing, ‘we can just move if the location isn’t working out’ I hear you say, but think about the cost and time associated with making a mistake. The upfront fit out costs, upheaval of unpacking & repacking, communicating with suppliers & customers and reprinting business stationery not to forget contractual break clauses could all be crippling. Avoid the headache and make sure you’ve done your research on the likes of business rates, crime levels and local traffic before proceeding further.
2. Finding the Perfect Fit
At this stage, I think it’s always important to take stock and dust off your business plan to assess where you see your company going in the next five years. Do the premises offer room for you to grow? Is the landlord likely to undertake any refurbishment works to improve the property during the term of your lease? Is there potential to modify the property to make it better suit your requirements? Ask yourself and your prospective landlord these questions before entering into a commercial lease agreement.
Can we continue to call this new office our home? When taking on a commercial lease, it’s always important to take stock and dust off your business plan to assess where you see your company going in the next five years.
3. Kicking the Tyres
- Main building elements
- External areas
- Outbuildings & boundaries
- Health & safety considerations
- Fire precautions
- Environmental considerations
- Hazardous materials
- Sustainability & cultural issues
4. It's Not Me, It's You
Landlords are typically required to maintain the physical structure of the building however what falls within scope of the term ‘structure’ is where it gets blurry. For example, heating & ventilation systems, which can be very costly to fix, are normally the tenant’s responsibility.
Your draft commercial lease agreement should specify what’s in and out of scope and if it doesn’t, or only makes a vague reference to it, don’t be afraid to challenge your landlord before signing – especially if the Schedule of Condition (don’t worry, I’m coming onto this next) highlights areas you’ll be responsible for aren’t up to scratch to begin with.
5. X Marks the Spot
For new or relatively modern properties, this is a pretty straight forward process. For older properties or those in a state of disrepair at the start of the lease, the potential liability to you is much greater if the Schedule of Condition is not a complete and accurate record. This is because you (a) may get some hefty repair bills much earlier into the lease period than you planned or (b) at the end of the contract, you’ll be required to leave the property in the same condition as you found it – and proving it was already in that state when you moved in will be a lot harder several years down the line. You may come to regret the day you didn’t spend a relatively small amount of time producing a detailed photographic record of the condition of the property at the beginning of your lease.
Just who is responsible for repairs? Landlords are typically required to maintain the physical structure of the building however what falls within scope of the term ‘structure’ is where it gets blurry.
6. Make Yourself at Home
According to RICS guidance, landlords will either put ‘an absolute bar on alterations, permit alterations subject to consent, or permit alterations subject to consent which is not to be unreasonably withheld’. So, even if you can make changes, the likelihood is that you will need to consult your landlord first and apply in writing, often incurring fees, to obtain a Licence for Alterations. Sound scary? Don’t worry, Chartered Building Surveyors like ourselves at PPC can help you throughout the process to make it as stress free as possible.
7. New Lease of Life
Looking back, I think I could have bought an original Picasso with the amount we got charged out of the deposit!
Any discrepancies (or perceived discrepancies) between the Schedule of Condition and the property’s current state, are referred to as Dilapidations. Prepared by a Chartered Building Surveyor, RICS states that "the Schedule of Dilapidations is a document that identifies:
- relevant lease/tenancy obligations
- alleged breaches of those obligations
- in certain circumstances remedial works that have been completed or are proposed in order to rectify each alleged breach and,
- potentially the estimated or actual cost incurred in rectifying those breaches"
At PPC Surveyors, we’re fully conversant with all stages of the commercial leasing process and can provide professional advice on your commercial lease agreement - whether it’s at the beginning, middle or nearing the end.
I hope you found my advice helpful. As the owner of PPC Surveyors Ltd, I’m an experienced Chartered Building Surveyor and an active member of RICS.
If you feel that my services are something that could help you when looking to lease your next commercial property, please feel free to say hello.