As a tenant, the idea of negotiating a commercial lease may sound intimidating, especially if the landlord is a large institution. However, in practice, the extent of your negotiating power will largely depend on market conditions.
If landlords are struggling to find tenants for their commercial premises, they’ll be more open to discussion. You may be able to agree to lower monthly rent, a break clause, a rent-free period, and alterations or renovation of the building before occupation. But if hordes of would-be tenants are queuing up to rent the premises, you’ll have a harder time negotiating terms.
In this article, we’ll guide you through the process of negotiating a commercial lease, providing you with valuable insights and practical tips to ensure you secure a favourable lease.
Can you negotiate a commercial lease?
Absolutely! Many business owners mistakenly believe that commercial lease terms are set in stone. However, negotiation is a key part of the leasing process. Whether you're a new tenant or renewing an existing lease, it's important to remember that leases aren’t one-size-fits-all. You have the right to negotiate favourable terms for your business and you may be surprised as to what you can achieve in the current economic climate.
How long does it take to negotiate a commercial lease?
The time it takes to negotiate a commercial lease can vary depending on various factors, such as the complexity of the agreement and the responsiveness of the parties involved. On average, the negotiation process can take anywhere from a few weeks to several months.
It's important to start the negotiation process well in advance to allow for sufficient time to review, negotiate and finalise the lease. It’s also vital that you give yourself enough time to take proper legal advice and not feel rushed into signing.
How much can you negotiate on a commercial lease?
The extent to which you can negotiate the terms of a commercial lease will depend on several factors, including market conditions and the landlord's willingness to accommodate your requests. It's crucial to conduct thorough research on the current market rates and lease terms for similar commercial properties in the area. This information will empower you to negotiate from a position of knowledge and potentially secure more favourable terms.
Also, it usually helps if you outline your business to the landlord (or their agents) and talk them through your vision for the future. This will help demonstrate your drive to succeed and give a favourable view of your business, which will give you an advantage over other potential tenants. After all, most landlords want to see that you‘ll be a reliable tenant for the longer term.
What rights does a commercial tenant have?
As a commercial tenant in the UK, you’re protected by the Landlord and Tenant Act 1954 unless you agree to contract out of its terms. This legislation provides you with several key rights, including the right to renew your lease (subject to certain exceptions), the right to negotiate rent during the lease renewal stage and the right to apply to the court to decide the renewal terms if the parties can’t agree on them.
What terms can you negotiate in a commercial lease?
When negotiating a commercial lease, several key terms should be considered:
- Rent – negotiate the annual rent and any rent increases during the lease term (ensure it aligns with your budget and business projections)
- Lease duration – determine the length of the lease that suits your business needs (consider options for lease renewal)
- Break clause – include a break clause that allows you to terminate the lease early if necessary
- Repairing obligations – clarify the responsibilities for maintenance and repairs, including the allocation between the landlord and tenant
- Service charge – negotiate the service charge provisions and understand the scope of the services covered
- Common area – discuss the usage rights and maintenance responsibilities for any shared or common areas
- Rent review – understand how rent reviews will be conducted and negotiate terms that are fair and reasonable
- Security of tenure (under the Landlord & Tenant Act 1954) – if you elect to contract out of these protections, the landlord has the right to refuse to renew your lease or offer to renew it but with substantially changed terms, so it’s important that you take independent legal advice and understand this aspect
How to negotiate a commercial lease renewal
When negotiating a commercial lease renewal, it's important to commence the process well in advance of the lease expiration date. Consider the following tips:
- Review the existing lease – understand your rights and obligations under the current lease
- Evaluate your needs – assess whether the existing premises still meet your business requirements
- Research market rates – gather information on current market rates to support your negotiation position
- Communicate early – openly discuss your intentions to renew the lease with your landlord, initiating the negotiation process
- Seek legal advice – engage a commercial property lawyer who can provide guidance and support throughout the negotiation and renewal process
How to negotiate a commercial lease for retail space
Negotiating a commercial lease for retail space requires careful consideration of several factors specific to retail businesses. Here are some key tips:
- Location is key – emphasise the importance of the location for your retail business and negotiate lease terms that reflect its value
- Footfall and opening hours – consider negotiating clauses that allow for extended opening hours and flexibility in response to peak footfall periods
- Fit-out and alterations – discuss your plans for the shop's fit-out and any alterations required to meet your specific retail needs (negotiate clauses that permit these alterations. It’s common for there to be an initial rent-free period whilst you carry out your fit-out, so you should ask for this if you can)
- Competition restrictions – ensure the lease doesn’t include restrictive covenants that prevent you from operating in competition with nearby businesses
Making an offer on a commercial property lease
When making an offer on a commercial property lease, it's crucial to approach the negotiation process strategically. Consider the following tips:
- Conduct thorough due diligence – research the property and its market value, ensuring you’re well-informed before making an offer
- Present a compelling case – clearly articulate your business's value proposition and how it aligns with the property's potential
- Highlight your strengths – emphasise your financial stability, track record and commitment to the property to strengthen your negotiation position
- Seek professional advice – consider engaging a commercial property lawyer early on who can assist in preparing and presenting your offer effectively
Get legal assistance from LawBite
Negotiating a commercial lease can be a complex process, but with the right approach and guidance, you can secure a favourable agreement that suits your business needs. Remember, negotiating a commercial lease isn’t a one-time event. As your business evolves, you may need to revisit and renegotiate lease terms at each renewal. You can maintain a healthy and mutually beneficial agreement by staying informed and proactive and building strong relationships with your landlord.
If you find yourself at a crossroads in negotiating a commercial lease and are feeling uncertain about where to begin, fret not! Our team of expert lawyers are here to guide you every step of the way. With their wealth of knowledge and experience, they'll be able to review your agreement with a keen eye and suggest terms that protect your interests.
Take the first step towards securing a favourable lease by booking a free 15-minute consultation with one of our lawyers. Simply give us a call at 020 3808 8314 or book a free 15 minute consultation. Let us be your trusted partner in navigating the intricacies of commercial lease negotiation.