If you are planning to take a lease of premises, whether it be for a relatively short term or a long term arrangement, what sort of issues should you consider?
It is best to have these considerations in mind when agreeing the heads of terms so that they will be rooted out at an early stage before solicitors are involved (saving time and money!) and you will find out early on if there is anything that the landlord is not prepared to agree to.
Whilst there are a number of important things to consider, here are 3 keys ones:
What your repairing obligation should be will, no doubt, depend on a number of factors including the nature of the premises you are to occupy, the proposed length of the lease and the bargaining positions of the parties.
If you are taking a lease of an old building that is not in a great state of repair and condition, consider whether your repairing obligation should be limited by reference to a photographic and textual schedule of condition. This could be used to show the state of repair that the premises are in at the date you take the lease, and if the lease is worded correctly, could act to limit your repairing obligation so that you are not required to hand the premises back in any better (or worse) state of repair and condition than is shown in the schedule of condition.
If you are taking a lease of a relatively newly constructed building, consider whether your repairing obligation should be internal only or, at the very least, should exclude inherent defects. The landlord may have the benefit of various warranties and guarantees provided to it when the premises were built and so it may be argued that the landlord will have adequate recourse in the event of an inherent defect manifesting itself.
Unfortunately, not many of us are in possession of a crystal ball. Whilst you may be entering into a lease of premises in the hopeful expectation that business will boom and your venture will prosper, what if circumstances change? Once the parties have entered into a lease, this binds them both to the contractual arrangement and there may be very limited circumstances in which that arrangement can be ended before the lease term comes to an end.
One way to give yourself some flexibility in the event that you need to “get out” of your lease in the foreseeable future is to ensure that the lease contains adequate alienation provisions. These are provisions that may allow you to transfer your lease to a third party or sublet the whole or part of your premises. Whilst the landlord may want complete control and may seek to prohibit alienation entirely, it is better to avoid such stringent provisions. Likewise, your ability to assign or sublet should be limited to reasonable conditions; it will not be much help to you if your rights to assign and sublet are limited by such strict conditions that you have no realistic possibility of being able to comply with them.
Of course, another option is to negotiate a tenant-only break right. This may be the right to end the lease on a single specified date, or it may be a rolling break right that allows the tenant to break the lease at a particular date in each year of the term. Whether the landlord will agree to a tenant-only break clause will depend on the bargaining strengths of the parties – and the terms on which the break can be exercised will need to be negotiated.
The ability to carry out alterations to a property may not always be a key consideration when negotiating heads of terms but it can be a significant point and ought to be given some thought. Firstly, it is important to ensure that you will be able to undertake any works that you need to carry out to the premises. This may be standard fitting out works or erecting a sign/logo on the exterior of the premises, or may involve significant structural alterations. Most leases will prohibit structural alterations but may allow non-structural alterations with the landlord’s prior consent (such consent not to be unreasonably withheld) and may allow demountable internal partitioning to be erected and removed without the need for the prior consent of the landlord. If you know that you will need to make structural alterations to the premises (which may include drilling holes or making penetrations through external walls for cables and extract ducts), make sure that you will be permitted to do so under the terms of the lease.
It may be that you don’t plan on making any alterations immediately, but what about in the future? Particularly if you are taking a long lease, it would be wise to negotiate a flexible alterations clause. If the alterations clause is too prohibitive, this may make the lease less attractive to a potential incoming tenant and you may find it difficult to dispose of your lease.
When addressing alterations you should also consider the provisions obliging you to give the premises back to the landlord at the end of the term. If the lease permits alterations, there may be a clause requiring that any alterations are reinstated at the end of the lease. If you plan on making significant or structural alterations, consider whether the reinstatement obligation should be “only where reasonably required” by the landlord and only where the landlord has given you sufficient prior written notice of that requirement to give you enough time to actually remove and reinstate the works.
This blog post was written by Daniella Sirovica.