As new pop-ups continue to emerge in city centres across the UK, CEW Board members Mishcon de Reya have set out their top tips and considerations when entering into a lease.
Whilst there are no hard and fast rules, and you don’t have to accept terms you don’t like, you should be willing to negotiate. It is useful to know what a standard position – which should be acceptable to both the landlord and the tenant – looks like to facilitate and fast-track your negotiation.
Here are their top 10 points to consider:
Consider whether you need professional advice.
Most commercial landlords are professional landlords or use professional agents. Instructing a professional agent and/or solicitor to act for you can help level the playing field, and they can negotiate and review the lease terms for you. Remember, just because a landlord issues their “standard” lease does not mean it cannot be negotiated.
Consider how long you want to commit to.Â
As a pop-up, you will want flexibility, so it may be better to negotiate a shorter lease term with an option to renew rather than a longer period.
Understand your payment obligations.Â
Some landlords may prefer to compromise on lower rents to avoid empty units and avoid the irrecoverable costs of insurance and business rates. Try to negotiate a rent-free period or reduced rent at the start of the lease term. Rents are often paid quarterly in advance, but we recommend you propose that rents be paid monthly instead. You should also check whether VAT is payable on top of the headline rent. Depending on the level of rent, you may have to pay stamp duty land tax on the grant of the lease, so you should factor this cost in as well.
Consider what extra cost you will be liable for.Â
As well as rent, the landlord will expect you to contribute to the cost of insuring the property and will likely charge you a service charge for providing services to the property – for example, the maintenance of any common parts shared with other tenants or the provision of toilets. Check what is included in the service charge, how it’s apportioned and when payment is due. Consider trying to negotiate a cap and resist contributing to a reserve or sinking fund due to the short-term nature of your interest. Landlords usually insure for loss of rent should the property be damaged by an insured risk. The loss of rent insurance is typically three years.
Ensure your business is insured.
Whilst the landlord is likely to be responsible for insuring the property (see paragraph 4 above), you will be responsible for insuring your contents.
You may be asked to provide additional financial security.
Landlords often require some type of financial security from a tenant by way of a guarantor or rent deposit. Try to avoid giving personal guarantees. If you give a rent deposit, the landlord should hold it in a separate account. Consider whether it can be returned early, in whole or part, if your financial performance is strong. You should be prepared to show the landlord your financial records and references.
Check the permitted use clause in the lease.Â
You should ensure that the clause is broad enough to cover everything you will be doing at the property. Always ask the landlord to confirm that the property has all of the appropriate planning permissions.
Consider whether you need early exit provisions.
Depending on the length of the lease you are taking, you should consider whether you will require a break clause which will give you the flexibility to exit the lease before the end of the term. You should be aware of any conditions attached to the break, as these are interpreted strictly. You should not accept a condition to return the property to the landlord with vacant possession. Always remember to include a provision that the landlord will be obliged to repay any rent paid in advance for any period after the break date. Be aware that if a landlord has a break clause which is exercised, you will have to find new premises.
Consider your repairing obligations.
Be mindful of obligations to put and keep the property in repair or good condition because this may mean repairing the property even if it was in disrepair at the start of your lease. Try to negotiate a photographic schedule of condition, especially if a property is in a poor state of repair. Combine this with a clause stating that you are only liable to return the property in the condition as shown in the schedule at the end of the term.
Look for flexibility concerning alterations.
Many leases provide that the tenant can’t make alterations or improvements without the landlord’s consent. Ask for concessions, so you do not need to apply for consent each time. For example, landlords will often agree to let tenants install and remove demountable partitioning without consent. Be aware of any clause that requires the premises to be returned in their original condition, with all alterations removed, at the lease end.
For more information, visit Mishcon de Reya
