Legal Aspects of Signing a Commercial Office Space Lease

Posted on by Prime Office Space

Finding the right office space at the right price and in the right area is an important step in doing business. Renting is a flexible way of securing an office space, especially for new businesses. A lease agreement typically lasts for several years, so there are a number of important considerations that need to be taken into account when leasing office space.

Agreeing to a Lease

It is important that you know your rights and responsibilities and recognise where you have flexibility to negotiate. The terms of a lease include the duration and various costs including when and on what basis rent reviews may take place. Rent increases can be negotiated, but in some cases they are fixed or linked to inflation. Leases can run for as little as three years or up to 25 years or more. They may include a tenant only break clause, which will allow a tenant to leave the office space early. These clauses are important in case your business is subject to or requires change. For example, you may need more or less space depending on how much or little your business is growing. Tenants may also be allowed to assign or transfer the lease to another occupier and / or sub-let if they need to move before the end of their lease. If you expect to be in an office space for a very short period, you might want to consider a licence agreement rather than a lease. Licence agreements are shorter and offer more flexibility but give little if any security.

The rent is not the only financial consideration affecting lease agreements. There may be a range of additional costs associated with the office space, which vary from landlord to landlord. When exploring potential office spaces be sure to ask about any service charges, deposits or premiums, and also whether VAT is payable.  As a tenant, you may also be responsible for some or all of the maintenance costs for the office space. Some lease agreements are also subject to Stamp Duty Land Tax. You will also have to pay utility costs and business rates, which can vary depending of the office’s location. It is always a good idea to hire a solicitor to help you with the lease agreement and associated paperwork.

Before signing a lease agreement, there are a number of steps you should take to minimise complications down the road. Check with the local council to see if planning permission is needed for any modifications you might want to do in the office space and to check that your proposed use is authorised by the local planning authority. A landlord may not allow certain alterations, so having these discussions early is important. Also, check to see whether a lease agreement has to be registered at the Land Registry as failure to register where required will mean the lease will not operate at law.  Tenants should also look into the cost of contents insurance, public and employers’ liability insurance as well as business interruption cover in the event of not being able to use the property during a period of reinstatement following a fire or flood. The responsibility for buildings insurance will usually fall to  the landlord, with the cost being passed on to the tenants of the building, so check before signing a lease in order to know the full cost of the office space.

Landlord and Tenant Responsibilities

While landlords are responsible for health and safety in communal areas and other areas written in the lease, tenants have a range of legal responsibilities for the workplace itself. A lease should outline who is responsible for repairs and maintenance. Any responsibility not mentioned in the agreement may be the responsibility of the tenant. As a tenant, you must also make reasonable efforts to ensure your landlord is following the lease requirements and their responsibilities. Even if there is a dispute, you are still required to pay rent or face eviction if you fail to continue making payments.

When renting an office space, you have several health and safety responsibilities. A tenant must carry out a health and safety risk assessment to identify and remove any workplace hazards. Tenants are also responsible for fire safety, electrical equipment safety, gas safety including maintaining equipment properly and scheduling annual inspections, and managing asbestos. Tenants must also ensure that the workplace is at a reasonable temperature and that there is sufficient lighting, ventilation and space. A tenant must also make sure that there is safe equipment, drinking water, and operating toilet and washing facilities.

Commercial office tenants generally have the right to renew their lease when it ends. In some cases this may not be possible, for example if you had a fixed-term tenancy of six months or less or you waived the right to renew at the beginning of the lease.  A landlord may oppose a lease renewal if they want to use the space for their own business or wish to redevelop the site.  When a lease ends or a tenant chooses to move, the tenant has a number of responsibilities. Before moving out, tenants may be required to pay for repairs or return the office space to its original state. Any repair requirements when moving out will be identified as dilapidations in the lease agreement.

We asked Matthew Walsh (LLB. (Hons)), Senior Solicitor and Associate with Simpson Millar LLP, Leeds for his thoughts on what to particularly consider when signing lease agreements:

“Premises are one of the most important assets of any business however tenants need to be careful as leases can often contain traps for the unwary or poorly advised! Specialist legal advice is important as is knowledge of the market to understand where negotiation will be possible with landlords and their advisers.

“Leases may appear daunting and the tips outlined in this blog post are a useful starting point however the devil is always in the detail and there is no substitute for expert advice particularly when considering the liabilities that leases contain.

“Tenants should pay particular attention to:

  • Repair and reinstatement liabilities and responsibility for dilapidations during or at the end of the lease and the scope for minimising their exposure
  • Service charge liabilities and whether these can be capped or collared
  • Availability of rent free periods, rent concessions and the drafting of rent review provisions.
  • The drafting of break clauses, whether these are fixed date or “rolling”, whether they apply to the landlord as well as the tenant and whether any conditions are attached.
  • Whether the lease permits the tenant to assign the lease, sublet and make any alterations and if so in what circumstances and upon what conditions.
  • Whether VAT and Stamp Duty Land Tax will be payable
  • Planning and other consents needed for the tenants proposed use
  • Whether there are any problems with the landlord’s title which may adversely affect the tenant’s position.

“Above all remember that agreeing the lease should be viewed as a negotiation in just the same way as you would negotiate any other deal for your business and that if in any doubt ask the experts.”

If you are looking for a simpler solution you can opt to rent serviced offices on flexible, short term agreements, usually from a few months to a year. You’ll find plenty of availability on Prime Office Space.

If you need a longer term arrangement and are considering a 3 year (or longer) lease it may be worthwhile consulting an expert in the field before you sign.