What should I be aware of before signing a commercial lease?

Congratulations! You’ve found the perfect location for your business. You’ve checked out the local competition, analysed the demographic data, drawn countless layouts for the internal space and counted the passing footfall in all weathers. You’ve done it, you’ve found THE property. “Where do I sign?” you ask.

But wait! Before signing a commercial lease read our top tips for new leaseholders…

Read the Heads of Terms

Read the Heads of Terms, then read them again before signing a commercial lease. A gentleman’s handshake with the landlord is just a handshake. The Heads of Terms set out the conditions of the proposed commercial lease. Know what you’re signing up to. What are your responsibilities as a tenant? Do you have to pay a deposit? When is the next rent review? What happens if your business runs into difficulties after signing a commercial lease, and you can’t meet your legal and financial commitments? 

Survey the property

Check the condition and find out whether the landlord is willing to fix the broken lift or repaint the shop front before you take possession. Discuss your obligations as a tenant regarding maintenance and repairs. Which of you would pay for a smashed shop window? Who would fix a leaky pipe? Who’s responsible for cleaning any communal areas?

Ask if there’s a service charge

The most commonly contested area within a landlord & tenant relationship is the service charge, so don’t rush this part. Find out exactly what your service charge covers and – equally important – doesn’t cover. Factor the service charge into your budget to avoid any nasty surprises or awkward conversations with your landlord down the line.

Check your permissions

Find out what you’re allowed and not allowed to do in your new space. Unsure whether you can open a bijou boutique, a bubble tea shop or a Pilates studio?  The Use Class is one consideration, but so too is the permitted use of the property. Find out whether your business is suitable for the building and be aware that landlords will be looking for a variety of retailers and service providers.

Consider ‘Green Leases’

Look for ‘Green Leases’ if you have sustainability credentials or are willing to agree to support environmental initiatives. More and more businesses are pledging net-zero targets and developers are being encouraged to incorporate sustainability into new developments. Assess your carbon footprint and don’t underestimate the value of your green credentials before signing a commercial lease.

Check your licences

Work out what licences and permissions you need. Will you be serving or selling alcohol? Are there any restrictions to your trading hours? Could you run a late-night shopping event for customers? Are there any limitations on when you can arrange deliveries?

Find out about your exit options

“I never walk into a place I don’t know how to walk out of.” Wise words from Robert De Niro’s character Sam in the 1998 film, Ronin. Don’t enter a deal without knowing how you can extract yourself from it. The prospect of leaving your new premises might be far from your mind when you seal the deal, but you need to be practical. You might need bigger premises in the future, or you might decide to relocate. Find out what your exit options are. Is there a break clause? Is there an early exit penalty? Can you assign/transfer the lease to someone else? Is there the ability to sub-let the space?

Appoint the best agent and team

Ask for recommendations and shop around for someone who truly understands you, your business, and your hopes and dreams. The ideal agent will support you, give honest advice and always act in your interests. The best agents work in partnership with the best lawyers, shop designers and contractors so, when you appoint a great agent, you get a great team.

Enjoy the journey.

Co-written by Lorna Rogers and Oliver Langston. Lorna is a Senior Associate within Dentons’ UK Real Estate practice @dentonsglobal. Oliver is the Founding Director of Locate Retail, an advisory firm representing independent and FTSE-listed retailers and hospitality providers @Locate.Retail.