Although experience as a residential tenant is something that many of us have, taking on a commercial lease can be somewhat different. Whilst the basic idea might be the same, there are different rights and responsibilities attributed to the tenant of a commercial property, which can make handling this type of lease quite difficult for anyone without experience. To ensure that you don’t waste time on unnecessary errors, here are the top five mistakes tenants make when leasing a commercial property:
1. Not calculating the financial element properly. A commercial lease will usually have more financial demands than a residential one – including the requirement that the tenant pays for the insurance, as well as covering costs such as any service charges. Be smart and ask the landlord up front for a complete list of all the charges so that you know exactly how much is involved from the start.
2. Not taking advice. Most professional organisations – such as the British Property Federation – emphasise the need for both landlords and tenants to take professional advice before entering into a new commercial lease. This will ensure that all parties completely understand the document they are signing, as well as making sure that there is nothing wrong with the essential documentation.
3. Expect a rent review. Commercial landlords, like residential landlords, will want to periodically review the rent, however, many tenants make the mistake of assuming that rent will remain the same, particularly on a very long commercial lease. You can expect a rent review roughly every five years or so – if the lease is longer than five years – and any change in the rent should usually be based on what that rent would be worth on the open market.
4. Seeing the landlord as the enemy. Cordial relations between a landlord and tenant can make all the difference to the overall experience. Common courtesies, such as keeping the landlord informed of any events that might hurt their interests, fulfilling proper notice periods in the lease, paying rent on time and raising any issues in a non-confrontational and reasonable manner are all key to making sure that the relationship continues to work on an ongoing basis – for both parties. Changes to the rent, insurance, building improvements or a planning application may all arise over the course of a tenancy and if these can be dealt with without conflict it makes everyone’s life easier.
5. Assignment and subletting. Most leases will have provisions covering assignment and subletting, as these are the two ways in which a tenant can pass on its responsibilities to someone else. Assignment is where the rights under the lease are sold, given away or passed to another paid party, whilst subletting means a tenant remains a tenant but creates a sub version of the lease between themselves and a sub-tenant who will occupy the premises. In most cases, both subletting and assignment will require the landlord’s consent and some leases may prohibit subletting altogether. As a tenant it is important to check the lease for these provisions before you enter into any arrangements as you may be in breach of the lease if you don’t.
Commercial tenancies are essential in business and it is not that difficult to avoid making any serious errors with yours. Bearing in mind the five situations listed above will ensure that you steer clear of making the most obvious mistakes.