Negotiating the correct level of rent at the start of a commercial lease is particularly important to businesses. Rent and other property costs do, after all, make up the largest fixed costs of a business – and since the level of rent often dictates the level of business rates, anyone intending to take on a commercial lease should pay particular attention to the impact of rent on the business overheads.
There are some points businesses should pay close attention to in negotiating the amount of rent:
- Is the rent the landlord wants roughly in line with the market rent for similar properties in the area? Any higher than the market level and your business may not be able to transfer on the lease, should you run into difficulties trading from the premises
- Do not be seduced by a generous rent free period at the start of the lease. Most landlords would always be willing to offer rent free periods to tenants anyhow. It is usually best to focus on the headline rent and, if necessary, take a shorter rent free period to keep the headline rent down.
- Landlords are increasingly prepared to offer tenants a financial contribution to help with their initial fit-out works, over and above an initial rent free period. Work out your likely fit-out costs and then seek a landlord contribution to these costs.
- It your business plans don’t work out, it makes good sense for tenants to have the right to end the lease early – so, for example, in a ten year lease, a tenant would typically want a right to end the lease early at the start of the fifth year. Most landlords will agree to give tenants such a right. There are various ways in which these rights can be documented, some more tax efficient than others – so ask your commercial property solicitors for their advice on this
Rent review clause