Taking on a lease of premises is a big commitment for a group and its Trustees/Management Committee who could find themselves personally liable.
Whether entering into a new lease or taking over an existing lease, it is important for you as a prospective tenant to understand the main provisions of a commercial lease and to be clear on your obligations going forward. Clear terms are essential, as this will save time for you and the person who is leasing the property when it comes to taking things forward on the legal side.
The more that can be agreed at the outset, the less time will need to be spent on the detailed lease negotiations. Also, being clear on all the costs for your premises will support your budgeting process and business case for financial support.
Here’s some tips when considering the terms of a lease:
- As part of your negotiations you should find out if there is a rent free period.
- Rent reviews will also be built in so your budgeting needs to take account of the potential rise in rent costs.
- You will need to consider the length of lease you can agree. For example, short term: 6 months – 3 years; medium term: 4-8 years and long term: 9 years and more.
- Your financial position and funding timelines will be the guidelines for what you can sign up to. As your funding is only secured for a set period, you should not sign up to a lease beyond the period of your funding.
- Agree the ‘break clause’ which is the earliest you can exit from the lease. If things change in the funding you have secured, you will need to know you can exit earlier from your lease. For example, you may sign up to a six-year lease with a break clause at year three.
- Check if there is an option to renew at the end of the lease. For example, after 6 years have you an option to renew for another period?
- Find out if you are able to sublet the premises to other people/groups. If your activities change and you have more space than you need during the lifetime of the lease, then you might consider subletting part of your premises to another organisation, if it is allowed in the terms of your lease.
- As a tenant you should make sure that everything that will be of particular importance to the smooth running of your group is covered in the terms.
- Discuss and agree the initial works to the premises that the landlord will provide. This could be painting, dividing up the space, providing disabled access points, additional electrics/plumbing etc.
- Check if you are able to make modifications to the premises under the terms of your lease. Also, check if the landlord expects the property to be left as it was when you first moved in – meaning any work or modifications that you have undertaken would have to be dismantled and removed.
- Check if there are any restrictions being imposed on the use of the premises. You need to make sure that all of the activities of your organisation are allowed under the terms of your lease.