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Renting business premises – what to watch out for in a commercial lease

September 29, 2014

When you take on a commercial property, you probably have a lot of things to worry about that don’t directly relate to the property itself – business plans, securing funding, and so on.

However, that does not mean you should become complacent about your new premises as signing a long-term commercial lease is a major undertaking that could ultimately decide the success or failure of your entire enterprise.

Instead of hoping for the best, simply maintain a mental checklist of the key issues – obviously you should go over the fine print in full detail before signing anything, but an awareness of the basics can help you to make a preliminary decision much faster, and can save you time and money if the lease does not meet your needs.

Here are the key points for you to consider when you are looking to rent premises for your business;

Limitation of Uses

Does the lease allow you to use the property for the kind of business activity you intend to carry out there?

This doesn’t just mean the difference between, say, retail premises and entertainment or dining outlets – it can be a relatively minor distinction, such as whether your restaurant can sell food for off-premises consumption.
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It’s often much easier to find a lease that’s already suitable to your needs than it is to change the permissions on an existing lease that’s unsuitable, so be certain before you take on premises that don’t have the necessary allowances already in place.

Length of Lease

How long does the lease last for, and is that a close match to your business plan?

For new businesses in particular, signing a lengthy lease on any given premises is probably a bad idea – you just don’t know what might happen, and it can be difficult to get out of your obligations later without paying the penalty.

You might want to get as short-term a lease as possible – you’ll probably be able to extend it later on if your company performs well, but you’ll have the option of escaping with any remaining funds if things take a turn for the worst.

Costs and Repairs

Costs relating to a commercial lease can be twofold – firstly, there are those relating to the lease itself, while secondly there are the normal costs of running business premises for the long term.

Does the lease require you to pay the business rates and utility costs? It usually will, and this will be on top of the regular rent payments – and there may be additional service charges specified, too.

Does the contract make you liable for any repair work? If so, you should check whether the building is in good repair when you move in – and make any concerns apparent in writing, with an unarguable date attached, in case you are blamed for any damage later on.

Transfer and Early Release

Look for a ‘break clause’, which will offer an escape route if your business performs poorly – this could save you a lot of money or legal action if you are unable to occupy the property for the full duration of the lease.

Also check whether you can pass the lease on to another party, and whether you will be held as the guarantor for their rent payments if you do.

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