Before signing a Lease

Guarantors will be Caught
Renting by way of a lease can be expensive and can be costly if you do the wrong thing. For example today most leases will require a personal guarantee from you as the owner of the business and most leases will still require you to be responsible for all costs, even if you have assigned the lease to someone else.

If you are a guarantor and that other person does not fulfil the terms of the lease or doesn’t pay the rent the landlord can come back to you and sue you for the costs. Taking out a lease or giving a guarantee is a serious matter because of the huge responsibility involved

Questions to Answer before Signing a Commercial Lease
If you haven’t rented commercial space before you need to know that there are quite a lot of traps involved. Firstly, there is no standard lease agreement because each lease agreement is different and needs to be carefully reviewed by your lawyer.

Secondly, it is a legally binding contract so you cannot break it when you feel like it. This can be to your disadvantage should things not work out. Before you lock yourself into a lease, look at the requirements that your business will have and discuss it fully with your realtor as well as your accountant and lawyer.

You need to ask yourself:

  • How long you plan to stay.
  • How you can get out of the lease if you need to.
  • What sort of space you really need.
  • Whether the premises will have onsite management.
  • What sort of tenant mix will there be in your building.
  • What sort of fit out are you allowed to put in.
  • Who will pay the ongoing costs.
  • Whether you have an option to sublease.
  • Whether there is a ratchet clause included.
  • What are the actual terms of the lease.
  • What amenities such as car parks etc go with the tenancy.

Commercial Property Checklist
Here is a checklist which will assist you when looking at leasing commercial premises. Remember that the lease is a binding contract which can tie you down for a number of years and will require certain obligations from you as well as the landlord. If you are not experienced in dealing with commercial property leases then take it very slow and ask all the right questions, as well as check it with your legal advisers.

The topics that you will need to cover include:

  1. Checking with your advisers.
  2. Who the lessee will be. Is it in your company’s name or in your own personal name in which case you will be personally liable?
  3. The term of the lease.
  4. Any break clauses which allow the lease to be ended before the end of the term.
  5. Full details of the property including other factors such as car parks or right of ways.
  6. Whether a guarantee will be required.
  7. The amount of rent that is payable and whether it includes outgoings or not.
  8. Outgoings and who will be responsible for those charges such as water, rates, gas, electricity, telephones etc.
  9. Whether there is any rent reviews and how the rent increases are calculated.
  10. What services, if any, will be provided by the landlord.
  11. Who is responsible for insurance of the building?
  12. Who is responsible for repairs and maintenance?
  13. The lease should state clearly what usage the premises can have. That is, what type of business can be operated there?
  14. Details of what fit outs or what alterations you can make to the premises.
  15. What happens if you make improvements? Will the landlord reimburse for that.
  16. Whether you are allowed to assign the lease.
  17. Whether you are able to sublet part of the premises if you want to.
  18. Whether the tenant has the right to repossess the premises if you fail to pay the rent.
  19. What happens if the tenant or the landlord fails to honour their obligations to repair and maintain the building? This will depend on whose obligation it is.
  20. Whether the landlord can bring action for distress, in which case the rent are in arrears and the bailiffs will seize goods and equipment to meet the costs involved.
  21. Whether there is any Sales Tax on the rent.
  22. Whether the lease can be extended and be clear on the obligations of the landlord under the regulations. 
  23. Whether it is possible to ask for a premium when the lease is assigned to someone else.