Taking a lease

For many businesses, taking a lease is the most attractive way of acquiring premises. A wide range of leasehold commercial premises is available, and the right lease gives you a secure base without the full costs of buying freehold premises. 

But taking a lease also represents a substantial commitment that can involve significant liabilities. Whether you are taking a long lease or entering a shorter tenancy agreement, you need to be sure that the premises and the rental agreement are right for you. 

The right leasehold premises 

Any leasehold premises you are considering must at least meet your basic needs. Setting out key requirements such as location, size and facilities in a written premises specification can be a useful starting point for the process of choosing premises. 

As part of this process, you’ll also want to think about how long you want to commit to the premises. A long lease can be attractive if you plan to alter the premises or build up a local clientele, but can also be inflexible if your needs change. You might want to negotiate a break clause allowing you to break the lease early, or the right to assign the lease to another tenant or to sublet the premises. Conversely you may want the right to renew the lease at the end of its term, under the Landlord and Tenant act. 

Leasehold rights and responsibilities 

The tenant’s rights and responsibilities are covered in detail by the lease agreement. Before committing to a lease, you need to understand exactly what these are. 

The type of business you can use the premises for is likely to be restricted by the terms of the lease, as well as by planning permission. The lease may also include other detailed rights and restrictions: for example, your rights of access (such as for customers), use of parking spaces and communal services. 

Crucially, the lease should set out your repair and maintenance responsibilities and what rights you have to alter the premises. A lease can create substantial potential liabilities to repair the premises, even if they are already in poor condition when you take on the lease. You may also need to adapt the premises to comply with legal requirements, such as managing asbestos and making the premises accessible to people with disabilities. A survey may be an essential step before taking a lease.

At the same time, the lease should set out the landlord’s rights and responsibilities: for example, making it clear what repairs the landlord is responsible for and what rights the landlord has to access the premises. 

Lease costs 

Although taking a lease does not involve the outright purchase of the premises, you may be asked to pay a premium for the lease and to make a deposit. Other initial costs can include stamp duty land tax (SDLT), legal fees for both yourself and the landlord and in some cases VAT. 

Continuing costs include regular rent payments, service charges, business rates, insurance and normal occupancy costs (such as utility bills). A long lease may include a periodic rent review. 

Costs and other aspects of the lease are generally negotiable and depend on demand for the premises. It’s worth remembering that while a more flexible lease may be more attractive to you, it may also increase the value of the premises and the rent you end up paying.