If so, negotiating a commercial lease can be a complex and important task. It’s crucial to get the best deal possible, so you need to be prepared to negotiate with the landlord.

Can Commercial Leases Be Negotiated?

The good news is that commercial leases are negotiable, even if the landlord has already provided you with an initial proposal. The amount of negotiating power you have will depend on the property market and the specific property you’re interested in.

How Much Can You Realistically Negotiate?

It’s difficult to give a precise answer to this question, as it depends on a variety of factors. However, there are some areas where you are likely to have more bargaining power, such as the length of the lease term, the rent review clauses, and the break clauses.

What Are Some Common Areas for Negotiation?

• Rent-free periods: Landlords may be willing to offer you a rent-free period to incentivise you to sign the lease. This can give you some breathing room to fit out the property or make other improvements.

• Rent reviews: You may be able to negotiate the rent review mechanism, such as the index that will be used to calculate future rent increases. You could also ask for a cap on the amount of rent that can increase.

• Break clauses: Break clauses allow you to terminate the lease early, which can be important if your business needs to change locations in the future.

• Repairing obligations: You will need to understand your repair obligations as a tenant. The landlord will typically want to pass on as much responsibility as possible, but you should push to negotiate a fair balance.

• Guarantees: You may be asked to provide a guarantee, such as a rent deposit or a third-party guarantor. It’s important to negotiate the terms of these guarantees to protect your interests.

• Term of the lease: The term of the lease will set the context for many other obligations, so you need to decide whether a longer or shorter term is right for your business.

VAT Status and Landlord's Costs

It’s important to understand the VAT status of the property and whether the landlord has opted to tax. If so, you will be responsible for paying VAT on the rent.

Surveying and Alterations

You should engage a surveyor to inspect the property and identify any repair work that is needed. You may be able to negotiate either a rent-free period or a contribution from the landlord to cover the cost of repairs.

Right to Buy

You may wish to negotiate a right to buy the property as part of the lease agreement. This would give you the option to purchase the property at a predetermined price in the future.

Negotiation Letters

It’s not strictly necessary to send a negotiating letter, but it can be helpful to clearly set out your requirements early in the process.

The Heads of Terms

The heads of terms are a preliminary agreement between the parties that sets out the key terms of the lease. You should review the heads of terms carefully and ensure that they are in your best interests.

Negotiation Timing

The length of negotiations will vary depending on the complexity of the property and the other parties involved. However, you should allow at least 6 to 8 weeks for a straightforward negotiation.

Negotiation Tips

• Do your research: Understand the market, the landlord, and your own priorities.
• Engage professional advisors: This includes a solicitor, surveyor, and accountant.
• Be prepared to compromise: Leave some room to manoeuvre and be willing to give ground in return for concessions from the landlord.

Get Help from James and James

Our commercial property department can help you negotiate the best possible lease agreement for your business. We have a wealth of experience in commercial property law and can provide you with expert advice on all aspects of the negotiation process.

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