Commercial leases - traps for the unwary.

If you are contemplating taking on a lease of commercial property, beware the following traps for the unwary:-

1. Most leases seek to make the tenant responsible for any repairs required to the property, or even to the building of which the property forms a part. In a short term lease this can be very unfair. You should try to restrict the repairing liability to liability for running repairs only, or to cap the service charge so as to avoid liability for major structural repairs. Either way, you must consider getting a survey to check what your contingent liabilities might be.

2. Beware hidden costs such as service charges and insurance premiums. Ensure you ask the letting agents for details of the total costs for which you are going to be liable. This is especially important for office leases of parts of buildings where there may be a sinking fund for major items of expenditure such as the roof or the lift.

3. Landlords will generally expect ingoing tenants to meet their legal expenses. Try to get these capped if you cannot avoid them altogether.

4. If you are being held to a lease somewhat longer than you would like, try to negotiate a break option.

5. Ensure you have a clear understanding of when, and on what basis, your rent is to be reviewed. The lease will inevitably provide that the rent is reviewed in an upwards only direction. This means that if property values fall dramatically, you are paying an inflated rent.

6. Try to negotiate an exit option in the event of destruction or serious damage to the property.

7. Beware sub-leases, because sub-tenants have no security of tenure if the head-lease terminates. If a sub-lease is unavoidable, make sure the main tenant is reputable and financially sound, or alternatively pay the rent direct to the landlords to minimise the chances of termination. If you have any queries in relation to leasing commercial property please contact Morinne Macdonald.