Commercial Property Lease

[TRltd]

Hi all.

We are in the process of negotiating a commercial lease and find ourselves a bit stuck. It's an end of terrace property on the business estate on 5 year lease with a possible break after 2 years. The unit is somewhat run down so we agreed to decorate when we move in. On the face of it we got a fairly good deal as the price is fair and we were offered 4 months rent free.

However, the landlord requested that we underwrite their legal cost of £1000 in case we pull out prior to completion.

We just got the lease, which is full repairing and insuring lease, and it seems to be very much in favour of landlord. We are responsible for internal and external repairs and are expected to fully decorate when we move out. It does say that repairs should be limited by a photographic scedule of condition (SoC). We have been advised to get SoC done by a surveyor but as we are, according to lease, responsible for external (including drainage and piping) as well as internal it seems we would need a full building survey.

The lease is outside of the tenants act so we don't have any rights re rent reviews or extending the lease.

Also the landlord wants a rent review after 2 years so we requested a break clause at that time so if we are not happy with rent increase we can pull out. The lease, though, states that we have to give minimum of 6 months notice prior to termination date yet the review can only be done not more then 6 months prior to termination date.

It is our first property and we don't have much experience in this.

Our solicitor has made some charges to the lease but not all of them were accepted.

My questions are:

Is it normal to be asked to underwrite landlords legal cost?

Does SoC covers us enough not to be expected to hand over fully decorated unit?

What happens if the roof, for example, caves in, and it will obviously not be covered by SoC?

Basically, I wonder if the landlord is trying to be clever and give us apparently good deal but get us tied up with the lease that will make us liable for £1000s of repairs when we move out.

Any advice is much appreciated.

 

[lockyer]

Commercial property leases are a whole new ball game compared to residential ones. The norm is repairing insuring, but this is where paying a good surveyor and solicitor to negotiate a tight deal now in your favour pays dividends in the future.

Don't skimp now, it's a false economy, and if you don't like the deal walk away now.

 

[KM-Tiger]

See what others say, but my suggestion would be to make a robust counter offer that sets out clearly what you will and will not agree to, and what can be negotiated further. The worst that can happen is that it is rejected. In which case walk away or make a better offer.

It's not uncommon for an opening bid to be OTT and include a period of slavery for your wife, children and mother-in-law. Nothing to stop you agreeing to the mother-in-law, but excluding the wife and children! They probably were not expecting to get them all.

It will depend on exactly where you are, but in general with the current state of the commercial property market, the landlord needs you at least as much as you need them. But they are not going to tell you that.

 

[chalkie99]

My first premises were very run down so I had a full structural survey done (which was a real eye opener) and my solicitor negotiated for the contents of the survey to be included in the lease such that I was not liable to make good or repair any defects which existed at the issue of the lease.

I would have thought though that with the amount of empty premises at the moment that you might be better looking elsewhere.

 

[deniser]

However, the landlord requested that we underwrite their legal cost of £1000 in case we pull out prior to completion. This is a matter for negotiation but it has not been standard practice for the tenant to pay the landlord's costs since the late 80's.

We just got the lease, which is full repairing and insuring lease, and it seems to be very much in favour of landlord. This is normal, you negotiate to bring it to an acceptable middle ground.

We are responsible for internal and external repairs and are expected to fully decorate when we move out. It does say that repairs should be limited by a photographic scedule of condition (SoC). We have been advised to get SoC done by a surveyor but as we are, according to lease, responsible for external (including drainage and piping) as well as internal it seems we would need a full building survey. The lease should say that you do not need to leave the premises in a better state of repair and condition than they are are the start of the lease - as evidenced by the SoC. This will then protect you from having to do extensive repairs.

The lease is outside of the tenants act so we don't have any rights re rent reviews or extending the lease. You may wish to renegotiate this especially if you are spending money on the property

Also the landlord wants a rent review after 2 years you should renegotiate this as 2 years is very soon but what is your lease term? You would normally have a 3 yearly review for a 6 year term or a 5 yearly for a 10 year term and none for a 3/5 year term.

so we requested a break clause at that time so if we are not happy with rent increase we can pull out. The lease, though, states that we have to give minimum of 6 months notice prior to termination date yet the review can only be done not more then 6 months prior to termination date. This is a tricky one which I explained on another thread - I'll copy and paste here:

1. your break option cannot usually be backdated
2. your rent review can usually happen at any time after the rent review date
3. to safeguard against the position you are in your solicitor should have ensured that:
(i) the break option comes some time after the rent review date giving you enough time after the rent review has been concluded to exercise the break
(ii) you have the right to trigger the rent review process as well as the landlord. You can then have certainty as to the amount of rent payable in good time to decide whether or not to exercise the review. If you know your break option needs to be exercised you can trigger the review by serving the notice, negotiating the amount - in this day and age often a zero increase - and then decide whether or not to exercise the break.

It is very difficult to time this right.

Does SoC covers us enough not to be expected to hand over fully decorated unit? It is not the SoC on its own but the wording that links it to your repairing obigations - see above

What happens if the roof, for example, caves in, and it will obviously not be covered by SoC? You need to check the condition of the building with a structural survey and negotiate accordingly. Whilst you may be able to limit your liability, it is unlikely that you will manage to get the landlord to pay for anything during the term unless you agree this at the outset and get repairs done in advance as a condition of taking the lease.

Basically, I wonder if the landlord is trying to be clever and give us apparently good deal but get us tied up with the lease that will make us liable for £1000s of repairs when we move out. Quite possibly

 

[TotallySport]

business is business, the property owner has something other people want, his plan it to earn as much money from it as possible, and not care about the customer. The customer wants things as cheap as possible with the best deal and not care about the business owner, if you think the lanlord is there to be fair to you I assure you he isn't. Thats why its always important to get a lawyer involved, they will be able to tell you what is standard and they should be working for you, but they are a business as well and they take their cut.

 

[TRltd]

Thank you all for your replies. It has been very helpfull and has given us lots to think about. I will attempt to renegotiate and if without success look else where.

Many thanks to everyone.