Commercial Property expert, Amy Husk looks at some of the less obvious points to consider to ensure your lease will provide the future flexibility your business needs.
Aside from provisions such as rent, rent review and the contractual term, it is important not to overlook the following:
A ‘fully repairing and insuring’ (“FRI”) lease means that the tenant will take on all responsibility and costs for repairing and maintaining the property. This could even include putting it into a better state of repair than it is in at the start of the lease.
Tenants should consider asking for a schedule of condition documenting the state of repair at the start of the lease and limiting the repair obligation to keeping the property in no worse state than as evidenced in the schedule of condition. This will keep the business’s costs down and ensure it is not making significant investment in a property it may only intend to occupy in the relatively short term.
If the business is taking on an existing lease from another tenant (i.e. taking a lease assignment) it is crucial to consider repairs and have a survey carried out to check whether the business could be taking over any historic repair liability from the outgoing tenant.
The ability to restructure property requirements as business needs change is key. If a break clause is agreed, the tenant should consider whether this is a ‘tenant only’ or ‘mutual’ break. A mutual break means that the landlord will also have the ability to end the lease, which could mean uncertainty for the business.
Consider whether the break has conditions attached and whether those could be easily met. For example, it is advisable to avoid a condition requiring the tenant to comply with all obligations in the lease for the break to be valid as this could open the door to arguments about whether the repair obligation has been fully complied with. Ultimately a landlord could prevent the break going ahead on that basis.
This means the ability to transfer (also known as ‘assign’) or underlet the lease. Should there be a need for the business to restructure its property interests at a time when there is no break on the horizon, transferring the lease to another business or sub-letting is an option. Usually the lease will include a requirement to obtain the landlord’s consent. It is important to ensure that the landlord cannot unreasonably withhold consent and that the conditions on which the landlord is to provide consent are not too onerous.
If the property lends itself well to sub-division or is already sub-divided, it may be worth considering whether the lease could allow for ‘permitted parts’ of the property to be sub-let without the need for the landlord’s consent. This would allow for the business to expand and contract as required.
Expert legal advice