Essential Tips for Negotiating Business Leases

Consider Appointing an Agent

Landlords usually hire agents to market their properties and negotiate leases. A tenant’s best interest is often overlooked unless they have representation. Hiring a commercial surveyor can help:

• Ensure the lease aligns with your business needs.
• Provide insights into the local market and fair rental values.
• Strengthen your negotiation position.

Familiarise Yourself with the RICS Code for Leasing Business Premises

The Royal Institution of Chartered Surveyors (RICS) Code helps tenants and landlords engage in fair lease negotiations. It includes:

• A guide for lease negotiations.
• Example “Heads of Terms.”
• A checklist for self-negotiating tenants.

Access the full RICS Code https://www.rics.org/content/dam/ricsglobal/documents/standards/February_2020_Code_For_Leasing_Business_Premises_England_And_Wales_1st_Edition.pdf

Think Long-Term: Security of Tenure

The Landlord and Tenant Act 1954 provides tenants with security of tenure, allowing them to renew leases upon expiry. However, most landlords exclude this protection. If long-term stability is crucial for your business, negotiate to retain security of tenure in your lease.

Define Property Responsibilities

Before signing a lease, clarify:

• The exact property boundaries.
• Structural vs. internal maintenance responsibilities.
• Whether common areas are included in your lease.

Understanding these details prevents unexpected maintenance costs.

Plan for Tenant Improvements

If your business requires modifications to the space, consider:

• Whether the lease allows alterations.
• If landlord consent is required.
• Preparing plans and obtaining approvals in advance.

Clarifying these terms in the Heads of Terms avoids delays and restrictions.

Assess the Condition of the Property

Leases often require tenants to return properties in "good and substantial repair," even if they were dilapidated at the start. To protect yourself:

• Conduct a survey before signing.
• Request a schedule of condition to limit repair obligations.

This prevents unexpected end-of-lease liabilities.

Choose the Right Tenant Entity

Tenants should sign the lease under the correct legal entity from the start. If using a newly formed company, landlords may request:

• A rent deposit.
• A personal guarantee from directors. You should try to resist a persona guarantee if you can.

Consult an accountant before finalising the lease agreement.

Negotiate a Break Clause

A break clause allows tenants to exit the lease early under specified conditions. When negotiating, ensure:

• The clause is “RICS code compliant” (fair and enforceable).
• There are no excessive conditions that prevent activation.

A well-structured break clause provides flexibility and risk mitigation.

Request a Rent-Free Period

Moving into new premises incurs costs, such as renovations and relocation. Many landlords offer rent-free periods to help tenants settle in before making payments. Ensure this is negotiated upfront to ease financial strain.

Conclusion

Negotiating a lease requires strategic planning and careful consideration of long-term business goals. By securing favourable terms, tenants can avoid future complications and build a strong relationship with their landlord.

For advice on lease negotiations or commercial property matters, contact Susan Collins or Sibel Vurdu in our Commercial Property department on 020 8290 0440.