Frequently asked questions about commercial property leasing

Although commercial property leasing is complex, the terminology is actually quite simple. If you’ve ever asked ‘What are heads of terms?’ or ‘Do I need commercial building insurance?’ this FAQ section is for you, with all the answers to questions about commercial lease terms you were afraid to ask, or didn’t know you had to!

How to do a commercial property search?

Start with the end in mind by understanding very clearly as much about the property you want to finish up with, as you can. Look at your business plan for guidance on what the business needs. Click this link for more information and a helpful video.

What are office relocation services?

Office relocation services should be everything you need to get from where you are now to where you want to be. The first stage is to establish what the business needs from its premises. Click here for more about how to start the process of relocating your business premises.

What is a commercial lease solicitor?

A commercial property solicitor will take the agreement the business owner has reached with the landlord or their agent (called heads of terms), and convert that agreement into a formal contract, which is binding on both parties. So the heads of terms must be an accurate and comprehensive reflection of what the business needs from its premises, expressed as a series of contract terms.

What is a rent review clause?

The rent review clause in a lease sets out the basis upon which a landlord can increase the rent on the business premises covered by that lease.

What is a rent review?

A clause in a lease that includes a series of terms designed by the landlord’s lawyer and calculated to optimise the new rent. It is very important to ensure that the rent review clause does not excessively penalise the tenant and that the new rent is recognisably in line with the market for similar properties. This is done at the time we are negotiating the heads of terms. Remember that it is vanishingly rare for a rent review clause to allow the rent to decrease.

What is a commercial building survey?

A building survey is a detailed inspection carried out by a suitably qualified professional to establish the condition of the building. It can have several purposes, most often to limit the scope of a repairing clause in a commercial lease.

What are heads of terms?

This is a document setting out the fundamental agreement between a landlord and a tenant and is the precursor to the lease itself. A failure to properly negotiate these terms and ensure that they are comprehensive and a fair representation of what the tenant wants, will mean that the lease will not contain that representation either.

Why use office relocation specialists or office relocation companies?

Relocating your business is a complex and time-consuming project and something you as the business owner are unlikely to be practised and experienced in. Particularly in searching for and negotiating lease terms for the right premises, the process is adversarial. In other words, the Landlord and their agent are using their knowledge and experience to optimise the outcome for them. Without the benefit of a specialist on your side you will likely be at a substantial disadvantage throughout the process because those two people will not tell you the things that might prejudice the outcome for them. A specialist in searching and in commercial lease negotiation will substantially improve the outcome for you. Click this link for a helpful blog on common considerations when relocating.

A full breakdown of all the heads of terms meaning

Click this link for a full breakdown of all the heads of terms in a typical commercial lease negotiation. Many of these terms are generic and some are specific to a particular business. Your business may well require specific clauses and you can get more information about this in my Premises Acquisition Cheat Sheet. Click here to download yours.

What is a break clause in a lease?

This is an opportunity usually on a specific date, to bring the lease to an end before the original expiry date. Break clauses are often complicated by conditions, which must be precisely complied with and it's important to understand that there are other ways of escaping lease obligations than a break clause.

What is office fit out?

Office fit-out is the process by which a new occupier makes changes to [usually] the interior of the premises they have recently leased to make them fit for purpose. As well as a fundamental practical detail, fitting out can have a huge influence on the environment for employees and therefore well-being and productivity.

What are business rates?

Business rates are a tax on premises collected by local authority but determined by central government. They are nominally based upon the rental value of the property which is assessed at intervals by the government and that valuation is related to a multiplier to derive the rates payable. If a rateable value is low enough the occupier will not be liable for rates and information on this is available from the local authority responsible for collecting rates.

What is a commercial lease agreement?

This is the legal document that defines the relationship between a landlord and a tenant and gives the tenant exclusive occupation of the premises defined in the lease. It is a series of obligations, liabilities, duties and costs, the vast majority of which fall upon the tenant. So, it is vitally important that those terms are properly considered and negotiated with plenty of time and with the benefit of as much knowledge and understanding as possible so that the lease is not unduly harsh on the tenant.

What is commercial building insurance?

This is a policy that covers the building fabric and it is normal in a conventional commercial lease that the tenant is liable to pay a proportion of the premium that reflects the proportion of the building they occupy.

What is business premises insurance?

Same.

How many fire extinguishers are required in a business premises?

This will depend on many factors including the size of the building, the purpose to which the building is put, the number of people or the quantity and nature of materials stored, in other words, the level of fire risk. Over a certain size and in other circumstances a sprinkler system may be required instead of or as well as extinguishers. The starting point for all considerations around fire safety will be a fire risk assessment which depending upon the circumstances can be carried out by a competent person within the organisation or by an external fire safety expert.

What are building use classes?

These are a series of categories setting out the purpose for which a building may be put. For example Class C is residential property. Class E which is a relatively recent development in planning terms, includes shops, offices, some food uses and certain specific industrial processes. Click here for a table of use classes including class E, which will encompass most business uses.

What are average office relocation costs?

There are so many variables in the process of relocating an office that it would be hard to say there is an average. It will depend on so many factors including liabilities in the expiring lease and fitting out costs at the new premises. There may be new furniture and equipment to purchase As well as changing websites, stationery, employment details and right down to things like changing the registered office if appropriate. There will be professional fees too, and they, like everything else, should represent a net benefit to the organisation being relocated. For a more detailed discussion about the implications for your business relocation, book a call here.

What is a rent review memorandum?

This is simply a statement of what has been agreed within the scope of the rent review clause and sets out details about the new rent.

What is a cap and collar rent review?

This is a mechanism by which the maximum and minimum increase in rent is defined. It is a way of limiting the downside risk to a tenant whilst also providing a guaranteed increase to the landlord so it can be an equitable scenario for reviewing the rent.

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