Most businesses cannot afford to buy their own premises. This typically means renting out a shop building or office space from a landlord.
Such an arrangement is known as a commercial lease. Unlike renting a home, the conditions of a commercial lease can vary a lot more – with some landlords granting extra freedoms, but also handing over extra responsibilities.
It is important to know exactly what type of agreement you are getting into before you sign on the dotted line. Certain mistakes could result in you entering an unhappy lease. Below are some of the common mistakes to avoid.
Skipping the small print
Commercial lease documents can sometimes be quite lengthy, and so it’s often tempting to skim over them. However, this could result in you skipping over important terms and conditions. You could then end up agreeing to rules or requirements that you’re not entirely happy with.
Spend time pouring over a lease document before you sign it. If there are many pages and you don’t have the time to read all of them, consider paying a professional to highlight the key points for you in the form of a lease abstract. Some contracts are unnecessarily wordy and condensing them could make it easier to understand what you’re signing up to.
Agreeing to an unsuitable lease length
Leases can vary in length from a few months to 20+ years. You should consider carefully what your future plans are and how committed you are to a location.
Short leases are ideal if you’re looking for somewhere temporary or if you’re uncertain about a location or business venture. In the latter case, it could be worth checking that a lease is possible to renew in the event that all goes well.
Long leases are ideal for well established businesses that have no plans for massive growth. They can provide a secure and stable location for years to come. That said, it is important to consider the break clause, which leads to the next mistake…
Overlooking the break clause
If you decide to exit your lease before the agreed term is over, you may have to give a certain amount of months warning or you may have to pay a large fee. These conditions are known as the break clause.
Even if you’re certain that you’ll want to stay in the same premises for many years, you never know what may happen in the future. A disaster could result in you having to close your business. Being able to exit your lease easily without there being too great a penalty could be important.
When considering the break clause, it’s also important to see what the conditions are if a landlord decides they want to end the lease early. How much warning must they provide? Are you still expected to pay the rest of the lease? These conditions could be important to look into – a landlord shouldn’t be able to throw you out without any notice or continue charging you if your lease has been prematurely ended.
Taking on an FRI lease property in poor condition
A full repairing and insuring (FRI) lease is a type of lease in which the tenant is responsible for repairing and insuring the property. Such leases may provide more freedom to remodel the premises, but could cost more in maintenance and insurance.
It’s important to thoroughly inspect the condition of the premises before agreeing to a FRI lease. You don’t want to move into an office building or shop building that is falling apart and then end up paying thousands in repairs out of your own pocket. By paying a professional surveyor to inspect the property, you can check for any hidden wear and tear.
Not negotiating lease terms
A lease is a two-way agreement between the landlord and tenant. You are in your right to demand certain terms and conditions in exchange for you moving in. While a landlord can refuse to take you on as a tenant, it is better than agreeing to a lease agreement that you are not happy with.
Most landlords will be willing to consider certain demands providing that you go about them in a courteous and friendly way. It helps that commercial landlords are not in a strong position now and that many are struggling to find tenants – therefore many are willing to make compromises if it means that a tenant will move in and start paying them rent. Of course, certain areas may still be competitive, in which case negotiating may be harder.
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