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Commercial Lease Agreements

AQ Archers > Commercial Lease Agreements

Your commercial property is likely to be your second biggest overhead after staff costs and amount to around 15% of your total overheads. Accessing legal expertise is critical to ensure you do not face costly repercussions if your business circumstances change in the future. AQ Archers, a London-based law firm, can assist you to negotiate a commercial lease, alterations, repairs and dilapidations, break clauses, renewing a business tenancy and rent reviews.

Negotiating a commercial lease

If you are a prospective tenant presented with a commercial lease, remember two things; firstly, the terms will be weighted heavily in the landlord’s favour, and secondly, he or she will expect you to negotiate terms.

Terms that are ripe for negotiation include the length of the lease, rent payments, break clauses, and repairs and maintenance.

How much negotiating power you have will depend on the state of the commercial property market at the time you take the lease. If landlords are finding it difficult to find good tenants and there is a glut of properties available, you are likely to have far more bargaining power. AQ Archers will help you negotiate terms that suit your business, both now, and as you grow.

Alterations

Most commercial lease agreements limit the scope of alterations a tenant can make to commercial premises. Standard terms tend to allow for internal non-structural alterations, so long as landlord consent is obtained. Alterations to the structure and exterior of the building are usually forbidden. Most lease agreements will also state the premises must be put back to its original condition when the tenant quits the property.

Under the Landlord and Tenant Act 1927, section 19(2), where an alteration is deemed an improvement from the tenant’s point of view, landlord consent cannot be unreasonably withheld.

If the landlord does withhold consent, it is up to you to prove he or she has done so unreasonably. Our lawyers can provide you with the advice and representation you need to gain consent and move forward with making alterations needed to grow your organisation.

The Landlord and Tenant Act 1927 allows tenants to claim compensation for any improvements made to the property upon quitting your tenancy. A strict procedure and timeline must be adhered to. You must give notice to the landlord specifying your plan for improvements. The landlord needs to respond within three months indicating whether they either agree to the improvements being made, forbid them, or they wish to carry out the improvements themselves in exchange for an increase in rent.

You may carry out the improvement if no notice of objection is received from the landlord or the court certifies the improvement as ‘proper’ – that is, among other things, it adds to the letting value of the premises. The works must be carried out according to the specification and plan provided, and in compliance with conditions imposed by the court. If not, you may lose your right to compensation.

Repairs and dilapidations

Repair and dilapidation clauses are often overlooked when negotiating a commercial lease, but these can cost you thousands of pounds if you do not fully understand the consequences of the repair responsibilities you are undertaking.

Most landlords look to have a tenant sign a full repair and insurance lease (FRI lease). If possible, avoid this like the plague! An FRI lease will mean you are responsible for repairing the exterior, interior and structure of the property. Depending on the length of your tenancy and the condition and age of the building, this could be very expensive.

AQ Archers can assist you with negotiating strongly to limit your repair liability. For example, you may wish to limit your repairing obligations to the internal part of the structure you occupy. We can help you succeed in this objective.