Before you commit to a commercial lease, here’s 7 things that Pratick, PPC’s Chartered Building Surveyor thinks you should consider.
I remember the very first house I rented in university like it was yesterday. It’s safe to say the prospect of not living in halls for another year definitely clouded my better judgement. In hindsight, we signed up to too high a rent (for the dive it was) and a contract a mile long, which I must confess, we didn’t take too much notice of – until the end of our tenancy that is.
In the business world, a commercial lease agreement is significantly more complex than a residential one which can make it easy for some landlords to hide costly clauses or make excessive demands on you as the tenant.
Now I’m not saying you’d be as naïve as we were way back then but it does demonstrate how important it is to do your research and familiarise yourself with the leasing process before signing on the dotted line. Doing so also empowers you to have better conversations with your landlord upfront so you can get the best deal for your business in the long term.
So, whether you’re looking for new commercial premises or your existing contract is coming up for renewal, here’s my ‘7 things to consider before you sign your next commercial lease agreement’.
1. Right Up Your Street
If you’ve ever watched Phil & Kirstie, you’ll know property is all about location, location, location. Just like the homes we live in, where you plan to locate your business is key.
OK, OK, so you’re leasing, ‘we can just move if the location isn’t working out’ I hear you say, but think about the cost and time associated with making a mistake. The upfront fit out costs, upheaval of unpacking & repacking, communicating with suppliers & customers and reprinting business stationery not to forget contractual break clauses could all be crippling. Avoid the headache and make sure you’ve done your research on the likes of business rates, crime levels and local traffic before proceeding further.
2. Finding the Perfect Fit
Once you’re confident you’ve found the right area, attention needs to turn to determining whether the commercial property you’re looking to rent (or continue renting) is fit for purpose. Rent per square footage, annual service charge, vehicle access, on site security and car parking are all but a few of the basic requirements you’ll need to consider.
At this stage, I think it’s always important to take stock and dust off your business plan to assess where you see your company going in the next five years. Do the premises offer room for you to grow? Is the landlord likely to undertake any refurbishment works to improve the property during the term of your lease? Is there potential to modify the property to make it better suit your requirements? Ask yourself and your prospective landlord these questions before entering into a commercial lease agreement.
Can we continue to call this new office our home? When taking on a commercial lease, it’s always important to take stock and dust off your business plan to assess where you see your company going in the next five years.
Think you’ve found the right premises? Then your next step is to appoint a Chartered Building Surveyor to carry out a Building Survey and produce a Due Diligence report. Using the RICS framework, your surveyor should assess the following key areas and feedback on any defects, causes and required action within the context of your draft lease:
Main building elements
External areas
Outbuildings & boundaries
Health & safety considerations
Fire precautions
Accessibility
Environmental considerations
Hazardous materials
Sustainability & cultural issues
Here at PPC Surveyors, we also like to take the time to really understand your business, your operations and any special requirements you may have as this helps us to tailor the Due Diligence report to your needs – both now and in the future. Sometimes this means having difficult conversations with clients if we don’t believe a property meets these needs at present. On the flip side, this often gives them the ammunition they need to go back to the landlord to renegotiate the rent or request remedial building work to be done before signing their commercial lease agreement.
4. It’s Not Me, It’s You
It is easy to assume the onus to carry out repairs and maintenance is on the landlord. Wrong. Although it can be a grey area, in commercial arrangements, financial responsibility generally falls on you as the tenant – in addition to your agreed rent and service charge.
Landlords are typically required to maintain the physical structure of the building however what falls within scope of the term ‘structure’ is where it gets blurry. For example, heating & ventilation systems, which can be very costly to fix, are normally the tenant’s responsibility.
Your draft commercial lease agreement should specify what’s in and out of scope and if it doesn’t, or only makes a vague reference to it, don’t be afraid to challenge your landlord before signing – especially if the Schedule of Condition (don’t worry, I’m coming onto this next) highlights areas you’ll be responsible for aren’t up to scratch to begin with.
5. X Marks the Spot
Just like when you hire a car, a Schedule of Condition sets out the condition of the property as the lease term commences and should be carried out by a Chartered Building Surveyor. A copy is attached to the final lease and must be agreed by all parties prior to signing.
For new or relatively modern properties, this is a pretty straight forward process. For older properties or those in a state of disrepair at the start of the lease, the potential liability to you is much greater if the Schedule of Condition is not a complete and accurate record. This is because you (a) may get some hefty repair bills much earlier into the lease period than you planned or (b) at the end of the contract, you’ll be required to leave the property in the same condition as you found it – and proving it was already in that state when you moved in will be a lot harder several years down the line. You may come to regret the day you didn’t spend a relatively small amount of time producing a detailed photographic record of the condition of the property at the beginning of your lease.
Just who is responsible for repairs? Landlords are typically required to maintain the physical structure of the building however what falls within scope of the term ‘structure’ is where it gets blurry.
6. Make Yourself at Home
Despite your best efforts, it’s highly unlikely you’ll find premises that won’t require any modifications whatsoever. From a full fit out to relatively simple improvements such as installing energy efficient lighting, if you think you may want to make changes – whether immediately or further down the line – don’t just assume you can. Consult your Building Surveyor who will check the wording of your commercial lease agreement beforehand.
According to RICS guidance, landlords will either put ‘an absolute bar on alterations, permit alterations subject to consent, or permit alterations subject to consent which is not to be unreasonably withheld’. So, even if you can make changes, the likelihood is that you will need to consult your landlord first and apply in writing, often incurring fees, to obtain a Licence for Alterations. Sound scary? Don’t worry, Chartered Building Surveyors like ourselves at PPC can help you throughout the process to make it as stress free as possible.
7. New Lease of Life
At the end of your lease, a landlord will expect their property to be returned to them in exactly the same state of repair as at the beginning of the lease, and in the same configuration. In our university house, I definitely regretted putting all those pictures up on the wall.
Looking back, I think I could have bought an original Picasso with the amount we got charged out of the deposit!
Any discrepancies (or perceived discrepancies) between the Schedule of Condition and the property’s current state, are referred to as Dilapidations. Prepared by a Chartered Building Surveyor, RICS states that “the Schedule of Dilapidations is a document that identifies:
Relevant lease/tenancy obligations
Alleged breaches of those obligations
In certain circumstances remedial works that have been completed or are proposed in order to rectify each alleged breach and potentially the estimated or actual cost incurred in rectifying those breaches
This stage of the leasing process can be the most stressful of all; leaving tenants open to inflated claims. This is why it’s so useful to have your detailed and accurate Schedule of Condition to refer back to as well as a Chartered Building Surveyor on hand who knows exactly how to progress negotiations and achieve you the best possible outcome.
At PPC Surveyors, we’re fully conversant with all stages of the commercial leasing process and can provide professional advice on your commercial lease agreement – whether it’s at the beginning, middle or nearing the end.
I hope you found my advice helpful. As the owner of PPC Surveyors Ltd, I’m an experienced Chartered Building Surveyor and an active member of RICS.
If you feel that my services are something that could help you when looking to lease your next commercial property, please feel free to say hello.
