The point at which a startup is ready to go from trading in its co-working space to securing its first committed commercial premises is a milestone moment. A commercial lease is one of the largest and most long-term financial obligations a young business will enter into.
For a start-up, commercial leasing law is a minefield of outdated statutes and landlord-friendly terms. Negotiating and consenting to a commercial lease is very different from signing a straightforward residential tenancy agreement as it can affect everything.
At Kaiser Solicitors, we specialize in advising ambitious start-ups through this pivotal stage.
- The Pivotal Negotiation:
Before the commercial terms of the lease are finalised in any binding legal document, they are outlined in an informal document known as the Heads of Terms (HoTs).
Negotiating Key Lease Terms:
Lease Term and Break Clauses: Landlords tend to offer 5-10 year terms. This is a major risk for a fast-growing or developing business.
Permitted Use: Make sure the permitted use clause of the lease is broad enough to allow for your business model to scale or shift.
Repairing Obligations (The FRI Trap): Most leases in commerce are on a Full Repairing and Insuring (FRI) basis, and hence the tenant has to pay for all repairs to the premises or inherent flaws in the structure.
- Stumbling upon Security of Tenure:
The Right to Renew:
If a lease is “within the Act”, the tenant has the automatic legal right to a new lease at the end of the contractual period, on similar terms, subject to a new market rent. The landlord is only entitled to refuse renewal on certain limited statutory grounds.
The Decision to “Contract Out”:
For most landlords, this statutory right to renew is an unacceptable limitation on their property rights. For that reason, the great majority of new commercial leases are “contracted out” of the protection of the LTA 1954.
- Legal and Financial Due Diligence:
Checking Title and Restrictions:
Your lawyer will have to search the landlord’s title to the property through the Land Registry.
Restrictive Covenants: Are there any covenants that might stop your intended use of the property?
Easements and Rights of Way: Does your company have a secured right to access important access points, parking, or shared facilities like bin storage?
Financial Guarantees:
Being new, you do not have the length of trading history and financial standing landlords like.
Rent Deposit Deed: A sum of money (usually 3-6 months’ rent) kept in a separate account as security for non-payment or defaults.
Personal Guarantee: The landlord will typically request a director or shareholder to give a Personal Guarantee (PG).
Conclusion:
Purchasing your first commercial property is a milestone, but the legal process is involved and requires professional skills. At Kaiser Solicitors, we break down complicated UK property law into understandable, commercial solutions, making sure your lease conditions are reasonable, adaptable, and insulate you from unintended liabilities. Call Kaiser Solicitors today to book an initial consultation.
