Most businesses don’t own the premises they work from, but lease them. A property lease is much cheaper than an outright purchase and you have the option of not renewing it when the time comes if you think your business could do better in a different area. It is important to consult property lawyers before signing the lease, especially if you don’t know much about them.
Here are some lease issues to consider before you sign on the dotted line.
- Make sure the term of the lease is long enough for you to recoup the investment and make a profit. Landlords are under no legal requirement to renew the lease. Plus, when they do renew they have the right to increase the cost.
- Ensure that your lease gives you the option to renew if you want to. A lot of time and effort is involved in moving everything to another location. Besides, the goodwill you have established may be attached to the location and you’ll lose it if you move.
- A minimum tenancy of 5 years is provided for in many commercial leases. If it is not, you have the statutory option to renew, but the landlord must be advised of this at least 30 days before the lease is due to end. It must be written onto a form called Notice of Exercise of Option.
- The lease should include the information you need to renew your lease. In many cases this should be done 6-12 months before the renewal date.
- If you don’t exercise the option to renew in the proper manner or time, the landlord may not renew the lease.
- Rent reviews are often provided for on an annual basis, but you can negotiate for them to be less often. There are four common types of review; consumer price index, market rent, fixed amount and fixed percentage increase. For commercial tenancy leases, only one of these can be used.
- Rent reviews based on a percentage of your turnover should be avoided if possible. This includes a base rent and additional rent based on a percentage of your turnover. To do this you have to provide the landlord with proof of turnover and he could use this information against you in the future.
- Your lease will include a clause containing permitted use details. You should ensure that all the uses you are likely to need for your business are mentioned.
It is wise to have the lease examined by a commercial lawyer to ensure it contains everything you need to make conducting your business easy. With the wrong wording your business activities could be limited and your chances of making a profit in the future less viable.
