So, you have found the perfect property for your business and you have been negotiating with your new landlord and their surveyor on what the terms of your lease will be. What next?

Paul Davies, Head of Commercial Property at Harper James explains what you should look out for when you are given a commercial lease to review.

The first document you will be given is what is known as the Heads of Terms. The heads of terms will list all the details about the transaction from who the Landlord and Tenant will be, to things like how much the rent will be and whether there will be any break clauses.

Modern commercial leases are lengthy documents and can feel quite intimidating at a first glance. They usually follow the same formula and can be broken down into key themes to make checking them easier. As a tenant, you will want to make sure that all the provisions are fair and reasonable and not too landlord friendly. You will also, of course, want to be sure that it matches what was agreed in the Heads of Terms.

Key themes to look out for in your new lease include:

• Definition of ‘Property': The definition of the property governs what you will be responsible for under the lease. Does the description of the Property match that on record at the Land Registry? Do you have car parking included and does that show on the plan?

  If you are taking a lease of part of a larger building, then there will be more detail. Check what exactly you will be responsible for. Is it only the internal non-structural parts? What about doors and windows?

  
  

• Rent review provisions: If your lease is longer than five years, chances are you will have at least one rent review. How often will the rent be reviewed during the term? What is the review mechanism – index linked (CPI or RPI) or market rent? Will the review be upwards only? Can you agree fixed rent increases? What happens if you disagree about the new rent?
  
  

• Service charges: service charges usually appear where you are taking a lease of a property that has common areas or parts shared with other tenants e.g., shared car parking or the roof of a building you share with other tenants.

  Check the list of the services the Landlord must provide. Is there anything missing? Is there an obligation for the Landlord to provide all of these services? Is the landlord required to maintain a sinking fund to cover unexpected expenses? How is your share of the service charge calculated? What happens at the end of the lease – will you get any over payments back? Will you have to reimburse the Landlord for any underpayments at the end of each year.

  What happens if you disagree with what is being spent? Have you negotiated a service charge cap so that there is a limit on what you can be charged?

  
  

• Repairing and decorating obligations: most leases require the tenant to keep the Property in good repair and condition. Look out for leases which require you to ‘put and keep' the Property into good condition; this is an onerous lease provision.

  Have you agreed to enter into a schedule of condition limiting your repairing responsibilities?

  Check what the expectations are for things like decorating the Property. Are you responsible for the inside only? Or will you also have to decorate the external parts? Do you have to use specific colours or types of materials for this? Do you have to seek the landlord's consent for things like colour or style?

  
  

• Alterations: The lease will dictate what you can and cannot change at the Property.

  Are you able to carry out structural works to the Property or only non-structural? Do you need to provide proof of regulatory compliance? Will a formal licence to alter be needed? Do you need to provide the Landlord with updated plans of the Property layout or update the Property's EPC? Can the Landlord impose conditions on you carrying out the work? What about non-structural internal partitioning – is this allowed without consent?

  You should ensure that you are able to do what you need to do to the Property so that you can use it.

  You should also check what you are required to do at the end of the Lease. Do you need to reinstate the Property back to its original state and layout? When do you have to do this?

  
  

• Alienation: This is a collective word for clauses which govern who is allowed to be in occupation of the Property.

  Are you able to sell the lease to a third party? If so, what conditions can the Landlord impose on this – are they reasonable? Will it make it hard to sell to a third party? Will you continue to have any obligations under the lease if you do sell?

  Can you sublet the whole or part of it? What will the Landlord's requirements be for this secondary lease? Again, are they reasonable?

  Can you take a legal charge (lending) over the property or share occupation with anyone else should you need to?

  Are these clauses wide enough to cover you in the future to prevent you being trapped?

  
  

• Insurance: This is very important if the Property gets damaged to ensure that it is quickly repaired and you do not continue to pay for something that you cannot use.

  What are the insured risks and do they give sufficient cover? When will the Landlord charge you for the insurance premium and how will that be calculated? What do you need to do if something does happen? What happens if the Property is damaged by an uninsured risk? Will the Landlord stop charging rent and service charge if the Property is damaged? What happens if the Property isn't fixed quickly? Can you or the Landlord bring the lease to an end?

  
  

• Contracting out: Are you expecting to get security of tenure (the right to a new lease at the end of the old one) or are you being asked to sign a declaration/statutory declaration? Look out for this clause and any additional paperwork given to you with the lease.
  
  

• Break clauses: These are a great way to get out of a lease that isn't working for you. Do you have any breaks? Are they tenant, landlord or mutual breaks? When can you serve the break notice? What does your break notice need to contain? Are there any conditions that must be fulfilled for the break to be effective?

The above is a non-exhaustive list of points to look out for in your new lease. You want to make sure that it is fair and reasonable and not too landlord friendly. The main thing for any new and aspiring tenant of course is to make sure that the lease enables them to use the Property for its intended purpose! If in doubt, ask your commercial property solicitor and don't leave it too late. Once the lease is completed; it is often too late to change it.