Things for you to consider when negotiating a lease of an office.
Premises
You should check that everything you expect to be included in your office is fully and accurately described in the heads of terms, and then in the lease itself.
Check the plan. Make sure the coloured outline which is meant to show your premises includes absolutely every area you expect to occupy. Make sure that cupboards, storage areas, basements, parking areas, are all included.
Make sure any fixtures and fittings to be included are specified in the heads of terms.
Premises
Not getting the premises measured
You missed a bit – you didn’t get all the premises
Rights
Make sure any rights you need over other parts of the building or land are mentioned in the heads of terms and set out clearly in the lease.
You might need rights like these:
- a right to install any specific services you need – e.g. for data or media
- common rights such as right to park, or to use toilets, stairs etc.
Term
Office leases are often for relatively short periods such as 5 years. You probably would not want to sign up for a 15 year lease because your business may expand beyond the premises in that time. For an office business, usually the premises don’t matter so much as the business’s own reputation and online presence. If you have a short or medium length lease, you can move to different offices in the same general location, and take bigger offices or smaller once depending on the success of the business according to the financial climate.
Break clause
You may be able to negotiate a break clause which will allow you to terminate the lease on a future date. This would be useful if you are not sure whether the premises will still be suitable for your business in, say, two years time.
Break clauses
Your break clause doesn’t work
Fair rent
The starting rent should be a fair rent for the type of property and the area.
Rent
You didn’t come up with any good arguments for reducing the rent
Rent-free period
You may be able to negotiate an initial rent-free period – e.g. for the cost and time of carrying out any fitting out works before you can commence trading, or as a commercial inducement to you to take the premises. You may also be able to negotiate a rent-free period for not exercising any break clause.
Rent-free period
You frittered away your rent-free period
Rent deposit or guarantee
The landlords may require some security from you. A rent deposit is better than a personal guarantee.
Rent deposit
Guarantors
You put your home on the line
You ruined your parents
Rent review
For longer leases, an upwards-only rent review pattern of every five years is normal. For shorter leases, the intervals may be shorter.
Check with your solicitors that the “assumptions” and “disregards” are reasonable and appropriate for your business. For example, improvements you make, such as your fit-out, must not be taken into account.
Rent reviews
Paying rent for your own fitting-out works
Use
Negotiating a wide description of the use to which you can put the property will help you with changes and developments in your business and it will increase the range of businesses you can sell the premises on to in the future. (For example, “an office within class E of the Use Classes Order 2021” rather than “an accountancy”.)
Use
You have too narrow a user clause
Shopfront
If you are taking a ground floor business and the shopfront is important to your business – e.g. you starting are an estate agency – the shopfront should be included in your premises so that you can freely alter and decorate it to suit your business needs. Watch out for restrictions on the lease inhibiting your ability to alter it or advertise.
You’ve got the shop – but not the shopfront
You’re not allowed any signs in the windows
Fit out
Decide at the very start what fit out works you think you will need to do. That will help you negotiate a rent-free period. Make sure that you have a detailed specification for the fit-out works before you sign the lease, and get them approved, so that you don’t need any further approvals once the lease has been granted.
You didn’t get approval for your fitting out works before you signed the lease
Repairs
This will depend on the building particular building and circumstances. But generally you should be responsible for repairing the interior of the office, and the shopfront if it is included, and the landlord should be responsible for maintaining the structure and exterior of the building and all its main services.
Check for potential problems like asbestos. Consider having a schedule of condition.
Repairs
Not having a schedule of condition
You forgot about asbestos – now it’s on you
Alterations
There will be restrictions in the lease on what alterations you can carry out. You should make sure that you have the right to carry out internal alterations and alterations to the shopfront, subject only to complying with statutory requirements, and only requiring landlord’s consent when reasonable.
You should seek to be able to install and move internal partitioning, and similar work which would not affect the landlord or any other tenants, without having to obtain the landlord’s consent.
Alterations to the premises
The restrictions on alterations are too tough
Service charge
In a multi-occupational building you will all the tenants will pay service charges. Make sure that they divide up the costs fairly between all tenants, and that the landlords pay their share for any empty property.
Service charges should cover the landlord’s costs of repairing and insuring the building and providing any necessary services. Make sure you do not have to pay for improvements, only repairs.
Service charges
Why are you paying for the lift? – You’ve got a lock-up shop
Freedom from controls
The lease will contain a long list of obligations and restrictions which you will be required to enter into. You should check them carefully to make sure none of them unreasonably restrict or prevent things you need to do for your business. They should only be there to prevent things which would adversely affect the landlord’s interest in the building, or the interests of other occupiers.
Accepting conditions you can’t live with
You can’t mortgage your lease and that messes up your refinancing
Freedom to assign and underlet
You must be able to assign the whole of the premises to a new tenant. This will always be subject to you first obtaining approval from the landlords for the new tenants. The landlords must not be able to withhold consent unreasonably.
There may be a right to underlet your premises, either in whole, or in parts. You may need this if you want to reduce the size of your business, or if assignment is not feasible because rents are lower at the time.
The lease may specify some circumstances in which the landlords can withhold consent even unreasonably, and there may be conditions which they can impose on you and the incoming tenants or sub-tenants. Check these carefully with your solicitors to make sure they are fair and normal, and won’t make it impossible for you to assign the lease or underlet in the future.
Leases will generally forbid informal sharing, but you may need sharing rights for other businesses in your group, or for desk-sharing.
You should have a right to mortgage the lease. Although business leases are not valuable as security, banks sometimes require charges over all a business’s assets which would include your premises lease.
Assignment and underletting
You didn’t get the right to share desks
You are obliged to guarantee your successor as tenant
You can’t sell your future business to a company
You’re not allowed to underlet at the right rent
Right to extend the lease
It may not be as important to you as it would be to a bar or restaurant that your lease is “inside the act”. But you can’t lose by having it inside the act, so you should seek to have this included in the terms you negotiate. It gives you scope to keep your business running, and to be able to assign the lease to another business if you need to.
Your right to renew the lease
Inside or outside the act
Giving up your right to extend the lease term