Tips For Heads Of Terms for Commercial Leases

There are a number of important factors to remember when negotiating for a new lease.

1. Term

The term of the Lease is the length of the Lease.  If you seek to negotiate a new lease 7 years or more then it will be registerable at the Land Registry.  If you are a new business the term is a critical issue as you will wish to make sure that your new business is going to survive, and that if it does not prosper you are able come out of the lease.  Therefore it is important to consider negotiating a Tenant Break Clause enabling the tenant to withdraw.  Typically you might negotiate a 5 year Break Clause on a 10 year lease, the Break Clause being exercisable by say 3 months’ notice.

2. Stamp Duty

Many tenants forget that stamp duty is payable on the amount of rent payable under the terms of a new lease.  Not only is stamp duty payable on the rent, it is also payable on any VAT which is charged on top of the rent.  This regrettably has led to double taxation but despite calls to the Government to withdraw this provision they refuse to do so.  Therefore the stamp duty can be considerable and it is worth asking us to calculate the stamp duty before you finally agree upon the terms of the rent.

3. Rent Free Periods

It is always worth trying to negotiate a rent free period particularly if you are taking on a fairly lengthy lease with high rent or where you might be fitting out the premises. You might wish to seek advice from a surveyor as to the appropriate level of rent and what might be an appropriate rent free period.

4. Repairs

It is important to know the extent of the internal and external repairs to the building.  If it is a fully repairing and insuring lease, the tenant repairing obligations could be extensive.  It is therefore always best to limit the repairing obligations by reference to a Schedule of Condition which sets out the current physical state of the premises.  A Schedule of Condition may be photographic or it may be a combination of photographs and a description of the property.  It is always best to instruct a surveyor to prepare such a Schedule of Condition.

If you fail to negotiate a Schedule of Condition and agree to a full repairing lease then before you proceed with the lease it is best to have a full structural survey so as to know precisely what you are letting yourself in for.

 

If you have any questions about the above article or commercial leases in general do not hesitate to contact Geoff Kew at g.kew@hewetts.co.uk or 01189 559604.

 

Published on 14/07/2017

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