A business owners guide to agreeing a lease on commercial property

When it comes to choosing the new location for your business, there is a lot to consider before signing on the dotted line – especially if you want to get the best deal possible.

This guide covers everything you need to know before agreeing a commercial lease. It will cover:

  1. A commercial lease overview
  2. Finding a property
  3. Getting legal advice
  4. Terminating the lease
  5. Making sure building’s insurance is included on the lease

A commercial lease overview

A commercial lease is a legal agreement between a business tenant and a landlord. The lease allows the tenant to use a property for business purposes that are within the conditions of the lease. In exchange, the business tenant will make a regular monetary payment to the landlord.

The type of property will vary depending on the business. Retail spaces, typical office buildings, industrial factories, and other types of commercial property will all be subject to commercial leases.

Aside from the obvious differences between a commercial and residential lease (we hope you don’t plan on living in your office), another key difference is the power of both parties. When it comes to commercial leases, the landlord and tenant are often knowledgeable business people, and as a result, there tends to be more room for either side to negotiate benefits.

The lease you will be presented with when considering a property will likely cover the following:

  • The location and type of property (eg. retail space or industrial warehouse).
  • The terms and length of the tenancy, options for renewal, and if there are any fixed terms.
  • The rent that will be charged and when these payments are due.
  • Any required security deposits and their conditions.
  • The type of business that can be conducted, and importantly, what business or practices are prohibited.
  • The terms of improvements that may be made and where the responsibility for these improvements lies.
  • Insurance requirements; whether it is provided or if the tenant needs to organise this.

As we mentioned, the first version of the lease that you are presented with doesn’t need to be final. There is always room to negotiate.

Finding a property

You would be forgiven for thinking property hunting is straightforward. Depending on the property that is available in your area, you may not be as spoiled for choice as you would like.

The first thing you need to do is make a list of priorities for your ideal space. Get as many of these ideas out as possible. It could be anything from a large break-room, to a certain number of private offices, to the number of plug sockets you need.

Once you’ve compiled this list, move the items into the following categories: Essentials, desirables, and non-essentials.

Essentials: This includes what you need to operate your business. Understanding what these are from the beginning can help you to find a great fit much quicker.

Desirables: These are the elements of the property that you’d like to have, but could survive without. It’s important to keep these features in mind as this could help you sway a decision when considering where you want to set up your work space.

Non-essentials: These features are those that you don’t need, don’t necessarily want, but you would be happy to have.

Once you have a list, it’s time to begin your search! It’s also important to consider your budget at this stage.

The aesthetics of a space are important, but they can also be worked around. A space that looks great but doesn’t quite suit your business can be an issue. A space that doesn’t perfectly suit your business can always be improved with something as simple as a fresh coat of paint.

Make these priorities clear to the commercial agent who is helping you with your search so they can assist you with finding the right space for your business.

Getting legal advice

Regardless of your knowledge and experience, we strongly recommend getting legal advice before signing a lease. Even if you’re happy with what you’ve negotiated, a lawyer can help to ensure that everything is above board and working in your favour.

Terminating the lease

In most cases, the commercial lease of a property will continue until the agreed end date. However, many leases can include a break clause. This is an agreed-upon date within the lease where either party can break the lease early without facing any repercussions.

A tenant will need to provide two months’ notice, if they intend to use the break clause, whereas landlords can only do so with permission from the tenant.

Landlords can look to terminate the lease if the tenants aren’t meeting the lease agreements, but this of course can be contested.

Tenants could leave early in situations where they have permission from the landlord, another tenant to take over the lease, or permission to sublet part or all of the property.

Making sure building’s insurance is included on the lease

If buildings insurance is included within your lease, then you won’t need to worry about organising this yourself! If you don’t have it, we strongly recommend ensuring that you and your business are protected.

Fire, floods, and extreme weather are all very real possibilities that could be expensive and cause extensive damage to your business premises. Furthermore, theft, vandalism, and other anti-social behaviour also pose a threat to your business.

If you don’t have the right buildings insurance, and these events were to occur, you risk exposing your business to serious costs that could see all of your hard work disappear.

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