A commercial lease is a legally binding agreement between a landlord and a business tenant that outlines the terms for using a property for commercial purposes. It’s crucial for both landlords and tenants to understand what’s included, as the lease will define your rights, obligations, and conditions for using the property.
What to consider in a commercial lease
1. Lease duration: Commercial leases can range from short-term (e.g. 1 to 3 years) to long-term (e.g. 10 years or more). You’ll need to consider your business plans when you think about this aspect of your lease. How long you plan to operate from the location, whether you will expand, relocate or operate remotely in the future; these will impact key drivers around flexibility and costs. Some leases will include break clauses, allowing either party to terminate the lease early under certain conditions.
2. Rent and payment terms: The rent amount, how it’s paid, and how often it’s reviewed should be clearly defined in the lease. Rent reviews may be linked to market rates or have pre-agreed increments, you should always be comfortable that these are fair and aligned to your business plans before agreeing a lease. Make sure the lease specifies what’s included in the rent, such as service charges, insurance, or maintenance.
3. Property use: Leases typically include a “permitted use” clause, detailing what type of business activities are allowed on the premises. It’s essential to ensure that your intended business use aligns with the landlord’s requirements. For instance, a retail space might differ in permitted use from office space or industrial premises. Your local Council may also have a view on the permitted use and if you plan to request a change to the category, contacting the landlord and the council is advised.
4. Repairs and maintenance: The responsibilities for repairs, maintenance, and renovations are typically divided between the landlord and tenant. A full repairing and insuring (FRI) lease means the tenant is responsible for all repairs and upkeep, while in other leases, landlords may handle structural repairs. Often there is a clause that details repair responsibilities when vacating a premises, be sure to look out for this as it can result in additional costs at the end of a lease agreement.
5. Alterations: If your business plans to make any alterations to the property, such as renovations or installations, ensure that this is agreed in advance with the landlord and detailed in the lease. Some leases restrict changes, while others may allow them with landlord consent.
6. Subletting and assignments: If you’re planning to sublet or assign the lease to another party, this will need prior agreement with your landlord. There are often restrictions in place where subletting is involved and so if this is required, make sure the lease clearly states under what conditions, if any, you can transfer the lease to another business.
Types of commercial leases
1. Retail leases: These apply to businesses using property for retail purposes, such as shops, cafes, or boutiques. Rent may be influenced by foot traffic and the property’s location.
2. Office leases: As described, these are used for office spaces and often come with shared amenities like reception services or meeting rooms. They may be flexible to accommodate growing teams or may offer access for a limited number of days per month. Further details shared below in point 4.
3. Industrial leases: For factories, warehouses, or manufacturing facilities, industrial leases often cover large spaces and may include specific terms regarding heavy machinery or specialised equipment.
4. Short-term or flexible leases: For businesses that require temporary space, short-term leases (e.g., serviced offices or co-working spaces) offer flexibility but often come at a higher cost per month compared to long-term leases.
Legal advice is key
Navigating a commercial lease can be complex, with many clauses and commitments to consider. Consulting with a legal expert ensures you understand all of your obligations under the lease as well as protecting your interests. At Jamieson Law, we specialise in reviewing, negotiating, and advising on commercial leases to make sure you’re fully equipped to enter into the agreement that works best for your business.
If you’re considering your next space, reach out to us for tailored advice on commercial leases, and get the legal clarity you need to make informed business decisions.
