A Quick Guide to Lease Negotiation
Many small and new business tenants end up negotiating leases themselves, usually with a surveyor acting on behalf of the landlord. This often puts a tenant at a disadvantage as they are dealing with a professional who negotiates leases every day for a living.
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Here are a few tips to redress the balance:
- Don't agree to pay the landlord's legal costs - it's not standard practice.
- Ask for a rent-free period - you're likely to get it in the current market and it improves your cashflow for a few months (especially important if you are a new business).
- Another way to improve your cashflow is to negotiate payment of rent monthly rather than quarterly.
- Ask for a break clause (a right to end the lease early). It gives you vital flexibility and is an easier way out of a lease than trying to sell it on or subletting.
- If the landlord agrees to a break clause, think about when your business might need to move premises and make sure the timing of the break suits your likely needs.
- Consider the Stamp Duty Land Tax (SDLT) consequences. SDLT on leases involves a complex calculation but as a rule of thumb multiply the rent by the number of years of the lease and then deduct £150,000. Your SDLT liability is roughly 1% of the figure you have left. eg £25,000 rent on a ten year lease would give rise to a SDLT liability of roughly £1,000.
- If the premises are in anything less than perfect condition insist a schedule of condition is prepared. This will detail any items of disrepair already existing at the start of the lease so that you don't have to foot the bill for these repairs.
- If you can possibly manage it, ask for the lease to be put in the name of your limited company (if you don't own one then you can form one for very little cost for this purpose) and offer a rent deposit rather than directors' guarantees if the company cannot provide adequate references. This ringfences your liabilities.
- If there is a service charge, request that it be capped to avoid a very nasty shock when the landlord asks you for your share of the cost of replacing the roof.
- Have all signage and initial alterations approved before signing the lease. If you wait until after the lease has been completed, you may be required to complete a formal licence and pay the landlord's legal and surveyor's fees.
- If the rent is to be reviewed during the term of the lease then ask for an upwards-downwards review rather than the traditional upwards-only review.
- If the value of your business is linked to the location of your premises (eg shop, restaurant) then consider asking for a longer lease and strongly resist the landlord removing your statutory right to renew the lease at the end of the term especially if you plan to sell on your business as a going concern once you have built it up.
If you still feel out of your depth then please feel free to contact Steve Petty or call 01926 629005 for more tactical advice.
Article added: 17 July 2008 © Cousins Business Law
This article is not intended to constitute legal advice, nor is it intended to be a complete and authoritative statement of the law, and what we say might be out of date by the time you read it. You should always seek legal advice to confirm whether or how any information in this article applies to your particular situation. We offer a free telephone consultation to discuss your particular circumstances.
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