Renting Small Business Premises- A Helpful Guide

  • Author: David Crosby
  • Posted on: 24th November 2020
  • Posted in: Blog

Renting new business premises for the first time can be a daunting prospect for any new business owner. It is really important before you sign on the dotted line, to ensure you understand the terms of the contract, also known as a commercial lease agreement to avoid any costly mistakes further down the line.

If you are responsible for organising the commercial business lease, then there are a few key things to look out for:

Property Classification

Different types of commercial property will be assigned a specific commercial classification. There are five main types of commercial property:

  1. Offices
  2. Retail
  3. Industrial
  4. Leisure
  5. Healthcare

Don't simply assume that you can operate the business you want from the premises you have chosen. Check that the classification of the premises is suitable for the type of business you plan to run, and if it does not fall into the correct classification then you need to find out if and how this can be changed. You can use the Planning Portal to find out more. 

Term of Lease

It is important to understand the term of a commercial lease so that you don't enter into a lease that is unsustainable for your business. If you are a small business owner it may seem unrealistic to plan to lease premises for a long period of time.

As a general rule of thumb, an office lease will start at around 5 years and retail premises at 10+ years but don't just rely on this being the case, find out the proposed lease term and whether or not there is room for negotiation using a break clause or sublease as this can help make the process easier. 

Rent Guarantee

Most commercial leases will require a rent guarantee to be provided- this is usually in the form of a guarantee from the bank or financial accounts which prove to the landlord that rental payments can be made consistently.

In some cases, a landlord may ask for a cash deposit from the tenant or even make a request to secure the agreement using charges on personal property. Find out more about personal guarantees for commercial leases

Payment Terms

Another key area to look at is payment terms. You need to understand the payment conditions associated with the proposed lease which will include:

  • Frequency- Will the landlord allow monthly payments or will it be quarterly (In most cases payments are quarterly)? Also, the majority of payments will be required in advance so make sure you factor this into your financial plan
  • Payment options- What are the best ways to make payment? you need to have this agreed with the landlord and set-up at an early stage to avoid missing payment deadlines. 
  • Additional Charges- Will there be penalties for missed or late payments? If yes, then what are the associated charges and when will they apply. 
  • Insurances- It is likely that there will be additional charges for business rates and buildings insurance so make sure you have these organised before the lease starts.

Make Sure You Seek Legal Advice

The above is a non-exhaustive list of what you can expect to cover, and there are plenty of other pitfalls which can arise. When considering buying or renting a commercial property it is advisable to always seek legal advice from the outset. A qualified solicitor will be best placed to help you navigate the complexities of the process.

You can find a solicitor to help via The Law Society website where they have a directory of SRA (Solicitors Regulation Authority) approved solicitors. 

If you would like to find out more about our commercial property services, then please get in touch on 01273 734 600 or email advice@crosbywoods.co.uk