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When you are starting a new business, deciding on a location is a crucial decision. If your business is small and made up of just a few people, you may decide to work from home or a shared workspace. However, if your business is bigger and you are planning for more growth, it may be worthwhile to consider operating from your own premises. One option is leasing out commercial premises. A commercial lease is quite different from a residential lease. Therefore, it is crucial you understand how a commercial lease agreement works. This article will explain key information on commercial lease agreements and whether it may work for your business.

What Is a Commercial Lease Agreement?

A commercial lease agreement is a contract you and your landlord agree on that defines how you can use the commercial property you are renting. It also outlines what your rights and obligations are. Usually, you negotiate the terms of your lease with your landlord in an agreement to lease. This means you have the option to set any conditions you want before you finalise the lease. It also provides you with an opportunity to perform your due diligence on the property.

For example, confirming that buildings on the property are structurally sound and checking any reports on the property itself. Once any outstanding conditions are fulfilled, and you are ready to finalise the lease, you will draft this up in a deed to lease.

Your commercial lease lasts for a set amount of time. For example, you can agree to occupy the premises for three years, with an option to renew your lease at the end of that time. This means that you will need to plan ahead for your business, to make sure you have the continuing resources to pay rent for that period. 

Commercial leases can cover a wide variety of property, and also what you use that property for. Some possible scenarios include:

  • store premises for your business;
  • a warehouse for manufacturing and holding stock; or
  • a storage area for your equipment. 

What Is in a Commercial Lease Agreement?

Some possible issues to cover in your commercial lease agreement include:

  • the term (length) of your lease;
  • who the parties to the lease are;
  • an exact description of the premises, that outlines what conditions they are in;
  • what business you are conducting on the premises;
  • tenant’s obligations related to your use of the property, such as minor maintenance and due care;
  • landlord’s responsibilities regarding maintenance and that the building is in good condition;
  • details of insurance on the property;
  • how rent reviews are calculated;
  • renewal and assignment rights;
  • what outgoings (property expenses) the tenant is responsible for; and
  • details of any guarantors.

Why Would I Rent Rather Than Buy?

Both avenues have their advantages and disadvantages, and the usefulness to you depends on the nature of your business.

For example, if you have plans to grow your company, you should consider a short term lease. This may be more suited to your situation so you can cater to that growth. Some other considerations would be:

Buying Commercial Property

Leasing Commercial Property

Suits businesses that are already well established and have the capital to invest.

Suits startup businesses that are expecting growth, that don’t know where exactly they will be in a few years.

You are protected from rent hikes.

Potential rises in rent

You avoid having to deal with a landlord.

Potential for disputes with your landlord.

Limits opportunities for rapid growth.

Is easier to sell and move out of.

You are responsible for property maintenance.

Your landlord handles day to day maintenance and any building requirements.

The market for buying property may be challenging to manage.

There may be more options available for leasing in the locations you want.

You have control over the property, and cannot be forced out.

You may be forced to sell if the ownership changes and you can’t renew your lease.

Key Takeaways

Leasing commercial property for your business can be a prudent decision to make if it suits your circumstances. When negotiating a commercial lease, it is crucial to keep in mind why you want to lease the commercial premises, and how they can best serve your interests. You would outline what you agree on with the landlord in your commercial lease agreement. You also need to make sure you read through and understand any contract that you sign, and obtain legal advice if you are uncertain about anything. If you would like more information or help with your commercial lease agreement, contact LegalVision’s property lawyers on 0800 005 570 or fill out the form on this page.

What does commercial lease mean?

A commercial lease is a kind of lease on commercial property. You do not live on the property like a residential lease, but you can conduct business from that property, or use it for other commercial purposes.

What should I look for in a commercial lease agreement?

You should look for the cost of rent and frequency of payment, and see if this is within your budget for your business. This rent may change over time according to the market and other economic considerations, so it is important to check for clauses detailing this.

Do I need a lawyer for a commercial lease?

It is a good idea to have a lawyer look over your commercial lease agreement early on in the lease negotiation process. They can check to see if there are any clauses or terms that go against your interests, and can help you negotiate for a better position as well.

How do I get out of a commercial lease?

A commercial lease can be for any period of time, but many last for a couple of years. Landlords want good tenants that will be able to pay rent for a fixed time so that they have a steady source of income. So, when planning for your business, you need to make sure that you have the financial resources to pay rent while you are leasing the property.

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