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A Legal Insight into Renting Commercial Property

Commercial premises are one of the foundations for a successful business and likely to be one of your main costs. The law touches on all aspects of commercial property rentals, and getting things right from a legal perspective is crucial. Here we summarise some of the main points to be aware of:

Are the premises rights for my business?

When choosing commercial premises you need to consider the factors that will affect what the building can be used for and whether this is consistent with your business. Notably, this includes local authority classifications and planning permissions, as well as covenants and restrictions on use imposed by the landlord.

The building will need to meet laws regarding, for example, disability access and health and safety. It is important to check that the physical nature of the building will allow you to comply with these and that there are no planning permissions preventing you from making any necessary amendments.

Lease or License?

You can rent commercial property through a lease or a license to occupy. Leases have a long duration (typically five or ten years) and can be ended early only in very restricted circumstances, whereas licenses last for much less time and can be terminated at short notice by either party. The other main difference is that when you lease a property the landlord can only enter under certain circumstances (e.g. to do repairs) whereas with a license they can come and go as they please.

The  main attraction of a lease is that is allows you to get on with running your business safe in the knowledge that you will not face the disruption of having to move premises in the near future. On the other hand it involves significantly more commitment on your part and could make it harder for your business to adjust to changes in circumstances (like an increase in demand necessitating larger premises). Due to the more involved nature of a lease, the legal documentation involved tends to be lengthier and more complex than for a license.

Rental agreement

It goes without saying that you should review your rental contract carefully and be prepared to negotiate the terms. Some of the most important issues are:

Whether you or the landlord are responsible for repairs and maintenance of the property. If you are, you might want to consider getting a surveyor’s report before committing to the rental.

With leases in particular, what circumstances allow you to terminate early (break clauses). Bear in mind that as things progress you might need to move to bigger premises to accommodate your business.

How often will the rent be reviewed and on what basis will it be increased? This could be the ‘open market value’ of the property, set increments, or a link to an index like the RPI.

Commercial property law is a complex area. Given how crucial premises are to your business, it almost always pays off to consult a suitably specialised solicitor when considering renting commercial property.

This article was written by Dominic Higgins; a contributing writer for Contact Law. Dominic graduated in 2005 from University College London with a degree in Law. Before working for Contact Law Dominic pursued a career as a legal adviser in South Africa and the United Kingdom; he has particular expertise in Employment and Commercial law. To learn more about renting commercial property, visit Contact Law for more information on commercial property law.