If you’re stepping into the world of leasing commercial property for the first time, negotiating the right commercial lease for your business can feel like navigating a maze. There’s so many avenues to explore, but only some may be truly beneficial to your day-to-day operations.

Securing a favourable commercial lease is vital to the continued success and stability of your business. Whether you’re launching a new venture from the ground up, expanding your existing operation or relocating, understanding the nuances of commercial lease negotiations can save you money and give you greater flexibility where you need it the most.

Within this article, we’ll break down the numerous elements of a commercial lease which you can negotiate to ensure the terms work best for you.

Understanding the term duration and renewal options

The length of your lease is one of the most critical aspects of any commercial lease. Shorter leases offer flexibility, giving you the option to move or expand if your business takes off. At Pall Mall Estates, we offer short-term letting arrangements on selected units within our property portfolio.

However, longer leases offer stability and can often secure rent at cheaper rates. Negotiate a lease term which aligns with your short and medium-term business plan, giving you the flexibility to adapt to future changes.

Having an option to renew your lease is also beneficial. This gives you the right to renew for a defined period under pre-agreed terms. Make sure you have a plan in place to negotiate how rent increases would be factored into any renewal.

Negotiating rent and rent-free periods

Before you begin negotiations, spend some time looking at the market to determine the average rent for similar commercial units in your area. Use this to negotiate a fair rent. Don’t hesitate to ask for a lower rate or a stepped arrangement where rent gradually increases over the term of the lease.

A rent-free period may also be worth your consideration. Landlords will sometimes offer this incentive to attract tenants, particularly in competitive markets or for units that have been vacant for a while. It could be useful at the start of your lease to offset start-up costs.

Ensuring favourable termination conditions and break clauses

Be clear on the conditions under which you can terminate your lease. Negotiate for favourable termination conditions, enabling your business to exit without severe financial penalties if your circumstances rapidly change. This can include clauses for early termination due to business downturns or other unforeseen circumstances.

Alongside termination conditions, you’ll also want to agree on the potential for a break clause which suits both parties. This gives you flexibility if your business needs to downside, expand or close. Ensure the break clause isn’t overly punitive. It shouldn’t need an excessively long notice period or incur high penalties. After all, a break clause can benefit landlords too, giving them the ability to find a new tenant that’s better suited to the space.

Leveraging sublease and assignment clauses

It’s also important to be mindful about sublease clauses. These allow you to lease out the property to someone else if your business no longer needs the space, or if you opt to move out before the lease ends.

This can help to mitigate losses and offer financial relief to your bottom line. If you want this flexibility, ensure subleasing is permitted within the lease and clarify any conditions stipulated by the landlord.

Assignment clauses are another option to consider. This is like a sublease clause, except that it involves transferring the entire lease to a new tenant. This can be useful if you sell your business or move to an entirely new location. If this is part of your exit strategy, make sure to negotiate for this to be added into your lease.

Defining your repair obligations and maintenance responsibilities

Make it clear who is responsible for repairs and maintenance. Typically, a commercial landlord will safeguard structural repairs and maintenance to major systems like plumbing, heating, ventilation and air conditioning. Meanwhile tenants will usually handle interior upkeep.

Negotiate to clarify your responsibilities, ensuring they are fair and outlined clearly in the lease. Some lease agreements will include a full repairing and insuring (FRI) lease. If a landlord stipulates this, just be aware this kind of lease makes you responsible for all repairs and insurances.

Ensuring security of tenure

In some cases, the law gives tenants security of tenure, giving you the right to renew your commercial lease under certain conditions. In the UK, this is covered under the Landlord and Tenant Act 1954.

Ensure your lease includes this protection, as it can offer long-term stability and prevent your landlord from evicting you or dramatically increasing rent at the end of the lease term without just cause.

5 steps to prepare for commercial lease negotiations

  1. It pays to have legal representation at this stage. Hire a solicitor specialising in commercial leases. Their expertise can help you negotiate the complexities and achieve the best possible deal.
  2. Be clear on what your business needs from a space, including amenities, location and flexibility. Use this as a basis for your negotiations.
  3. If the terms are unfavourable, be prepared to walk away from negotiations. It’s better to wait for the right deal and unit than take the first one available.
  4. Be ready to foster a positive working relationship with prospective landlords. It can often lead to more favourable terms and smoother negotiations.
  5. Make sure all agreed terms are well-documented in the lease. Verbal agreements aren’t legally binding and result in awkward misunderstandings.

Secure a tenant-focused commercial lease right here at Pall Mall Estates

If you’re looking for a commercial property landlord you can trust, look no further than Pall Mall Estates. For over three decades, our approach to delivering high-value, low-cost business space across the UK has delivered for hundreds of businesses nationwide.

Our customer-focused culture aims to give tenants much-needed flexibility and value for money from workspaces in strategic industrial and commercial heartlands.

Take some time to browse our available workspaces to let today and if you’re interested in any units within our commercial property portfolio, you can give our friendly and experienced team a call today on 020 8986 7221 to get the ball rolling and find out more.