The top 5 things your business needs to know are:
2. Heads of Terms The Heads of Terms set out at the negotiation stage what the main terms of the lease will be. They include, for example, the length of the lease, whether you have the right to a new lease at the end of the term, whether you can end the lease early, repairing and service charge obligations, whether a rent deposit and/or guarantee is needed, what you can use the property for, whether you can transfer the lease to another business or underlet if you no longer need the property, whether you can make alterations and how any rent review will be dealt with. Heads of Terms set the tone of the lease and unless certain things are spelt out very clearly, there may be financial implications detrimental to you in the lease. We therefore recommend that you take professional legal advice on the Heads of Terms before finally agreeing them.
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3. Repair – literally the bricks and mortar When you sign up to a lease it is not as simple as just paying rent to occupy a property. You will have repairing and therefore financial obligations.
There are two main ways of dealing with repair in a lease:
1. A fully repairing and insuring lease (known as an FRI lease). This can be used when you are taking a lease of the whole building. In this lease you will be responsible for maintaining and repairing the building in the same way as if you owned the freehold. You will also pay the Landlord all of the costs of insuring the building.
2. An “internal only” lease. This can be used when you take a lease of part of a larger property or building meaning you won’t be responsible for maintaining the building yourself but the Landlord is likely to want to ensure that they do not end up with any costs of repair. Therefore, through the service charge, they split the costs of repairing the structure of the building to all of their tenants. You will pay your share of the cost of maintaining and repairing the building. The wording of the repairing clause in the lease is extremely important and will decide what standard of repair you will be responsible for and is the main way of controlling the extent of your liability. You could, for example, negotiate at Heads of Terms stage that you only have to keep the property in as good condition as it is in at the date that you take the lease. In which case you will need to agree a Schedule of Condition. Without careful drafting you could find yourself responsible for costs to put the property in a better state than it was in when you took it!
4. Service Charge Do you know how much the service charge will be? What will the service charge be used for? Is there a maximum level of service charge that your business will have to pay? This information will be discovered in the enquiries process carried out by your lawyers.
5. Stamp Duty Businesses often don’t realise that Stamp Duty Land Tax (called SDLT) can be payable on leases even if they are for 5 years or less. It will depend on the length of the lease and the amount of rent that you will be paying. It is important to know if you will have to pay this on completion of the lease as it is payable within 30 days of completion. An SDLT Return has to be submitted to HMRC on your lease whether or not SDLT is payable, otherwise you may have to pay a penalty fee or interest on any late SDLT.
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