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Commercial Lease

Leasing a business premises is one of the biggest investments you’ll make. It’s a commitment to paying thousands of pounds in rent each month, year after year for 5 to 10 years, perhaps more. In return you secure a place of business: an office, a shop, a restaurant or warehouse to support your livelihood for years to come.

A commercial lease (or commercial tenancy agreement) is a contract between you (the tenant) and the landlord. It sets out your rights to occupy the premises and your obligations to pay rent and abide by the rules set by the landlord. These rules can be complex and vary from lease to lease. They depend on the type of business you run, the premises you’re renting and your bargaining power. Finding the right expert to help you understand and negotiate these rules is vital to ensure you get a fair bargain.

At Lexoo, we let you compare multiple quotes from commercial property solicitors to help make the right decisions. We only send your enquiry to the most relevant solicitors - those with expertise and experience with commercial leases. All our solicitors are insured and are governed by ethical standards, giving you peace of mind that your business is underpinned by a tenancy agreement that reflects your needs.

I was in dire straits and in search of immediate legal representation on a commercial lease agremeent. I contacted over a dozen solicitors both online and in person and got over a dozen annoying quotes. I then found Lexoo, filled out a simple form online stating what I wated at 3pm and by 3:27pm I was paired with a high profile solicitor who established communication immediately. They got the ball rolling straight away, and the price was the most affortable I have received. Lexoo is life made easy.

- Charles Scott-Emuakpor, Prime 5D Centre

How much can you expect to pay?

Although prices can vary greatly, we’ve seen hundreds of enquiries for commercial property leases come through Lexoo. The fixed-fee quotes we’ve typically seen range between £750 to £1,000 for straightforward leasing transactions for smaller tenancies such as retail shops, cafes and small businesses.

For larger, longer term office leases that require more extensive negotiation, quotes have typically ranged from £3,750 to £6,000 plus government fees and taxes. For example: a commercial office lease over a 4,000 sq ft tenancy, renting for £160,000 per annum over 10 years.

Submitting an enquiry through Lexoo is easy. Just give us the main details, for example:

“I am about to lease a commercial premises in Harrow. The landlord will provide the first draft of the lease, but I would like a commercial property solicitor to review this draft. The Heads of Terms have now been agreed (which I will forward to you), but in brief:

• We will be changing the use of the premises from an office space to a restaurant. We will need the lease to be subject to us gaining planning permission.
• We will be making alterations, so will need a licence for alterations from the landlord.
• The term will be 5 years with a break clause at 18 months and 36 months.
• The rent per annum will be £25,000. There is no initial purchase price.”

(This is a fictional, but typical type of enquiry we’ve been able to help with)

Government fees and taxes

For longer and higher value leases, there are additional fees and taxes payable (your solicitor will typically call these “disbursements”):

• Land Registry Fee: minimum £40 to register your lease (required if the lease term is 7 years or over).
• Stamp Duty Land Tax: 1% of the net present value of the rent payable over the term of the lease (where that value exceeds £150,000)); or 2% for rent value over £5,000,000.

Your solicitor will calculate these for you, however the fees themselves are payable to the government.

Additional costs

Other costs and disbursements might include:

• Land registry search fees to check the legal title of the property
• Local authority searches to check your anticipated use complies with planning laws or whether any development plans might adversely affect your premises
• Bank transfer fees

Some commercial property solicitors will include these costs in a fixed fee quote, while others will charge them as extras. Make sure you ask your solicitor to specify what’s included and what’s not.

Negotiating your commercial lease

As the tenant, you’ll generally negotiate the lease with an agent, not the actual landlord. Always remember that the agent acts for the landlord. They have been hired to negotiate the best deal for them, not you.

The first legal document you’ll get is the “Heads of Terms” - a short, precursor agreement to the full lease. It will generally favour the landlord, so start your negotiations here (if not before). Even if you and the landlord are on friendly terms, bear in mind they may one day sell the premises and a new landlord will step in.

A commercial property solicitor can not only help you negotiate the legals, but also give you insights into what’s common market practice in your sector. When the Heads of Terms are agreed, the landlord’s solicitor will issue you a formal lease with all the fine print. There are dozens of considerations and different types of clauses in leases that can benefit you or increase your risk. Here are a handful of things to ask for, and to watch out for:

Ask for:

• Rent free period: ask for a period (e.g. 1 to 3 months) where rent is not payable.
• Break clause: a clause allowing you to get out of the lease without penalty, for example after year 5 on a 10 year lease.

Watch out for:

• Security of tenure: if your lease is for 6 months or more, the law automatically gives you a right to stay in the premises and renew your lease at the end of the term. This is called “security of tenure” and is found in the Landlord and Tenant Act. Many landlords will have a clause in the lease that excludes this right. Delete that clause if possible.
• Guarantor: you may be asked to give a personal guarantee. If so, make sure you understand what the guarantee covers and exactly when and how the landlord may “call” on your guarantee. If it is called, what personal consequences will you suffer? Can you afford it? Avoid using your home as security.
• FRI leases: this is a “full repairing and insuring lease” where you cover all costs of maintenance and repair and the cost of insurance. This can be very onerous. Consider asking for a “gross lease” - a lease where you pay fixed rent (plus a few specified expenses) and the landlord pays all other expenses for operating and maintaining the property.
• Rent reviews: if your lease has a rent review (common in leases over 5 years), try to make sure the rent can go down, as well as up. Typical ways to review rent is by using market rates as a reference, using turnover generated by your business (common in retail) or using an index such as the Retail Price Index which tracks inflation.
• Authorised Guarantee Agreements: many leases will say that if you sell your lease to a third party, the landlord will require you to guarantee that lease via an Authorised Guarantee Agreement (AGA). This means that if the new tenant fails to pay the rent or breaches the lease, then the landlord can seek payment from you. Try to negotiate an alternative, such as having the new tenant pay a rent deposit. If you can’t avoid an AGA, try to limit it to cases where your proposed buyer is financially weaker than you. Include rules allowing you to cancel the guarantee if certain conditions are met and/or after a set period.
• Landlord legal costs: watch out for landlords trying to get you to pay for their legal fees. It isn’t standard practice and you shouldn’t agree to it. Each party should pay their own legal fees.

Practical considerations

• Purpose: leases limit the use of the premises to a specified purpose (for example, B1 (Offices)). Check that your proposed use complies with any planning consent, or ask your solicitor to check for you.
• Deposit: the deposit is your money. If it were in a bank, you’d get interest on it, so expect the same with your deposit. Make sure it is held in an account that belongs to you (escrow or stakeholder account) in case the landlord becomes insolvent. Ask your solicitor whether a Rent Deposit Deed might be required.
• Schedule of condition: either get a surveyor to produce a photographic schedule of condition or take photos yourself to record the condition of the premises at the beginning of the lease. If you DIY, get the photographs dated and witnessed and keep a set with your lease documents.
• Subletting if you want to sublet or share possession of the premises with anyone, make sure their rights to occupy expire before the date of your break clause (if you have one) and/or before the expiry of your own lease.

Top tips when selecting a commercial property solicitor:

• Select a solicitor who has expertise in commercial property leasing. Most experts will equally handle various types of property such as office leases, retail and shopping center leases, restaurant and warehouse leases. However some leases require particular expertise such as those involving alcohol or gambling licences.
• Check what disbursements (additional costs) will be payable in addition to your solicitor’s professional fees; or whether they can include some of these in a fixed fee quote.

And finally, make sure your solicitor has professional indemnity insurance. All the solicitors on Lexoo are not only fully insured, but have been hand-picked by us to make sure you get the right expertise for your legal needs.

Looking for help with buying a business? Read more here.