For a new business taking a lease of a property, whether it’s a retail shop to trade, an industrial workshop to manufacture things, or an office to provide a service – the excitement can unfortunately mean important details are missed. Although critical issues like when the rent is paid and how long the lease is taken for are top of the list, these shouldn’t be at the detriment of others.
And typically this is to do with the actual condition of the property. Although it may look in generally good condition, with a simple lick of paint being needed, and it may be left clean and tidy from the previous occupier, there can be a whole host of problems brewing away. And to make it even worse, with commercial property the buck and liability tends to end more with the tenant compared to a residential property where the landlord often still maintains the main structure and services.
The 3 Critical Factors
Therefore here are the 3 important factors to consider to do with the actual condition of the property. These must be mulled over by a tenant during lease negotiations, and not left to afterwards when the lease has completed and liabilities may well be finalised.
These are very general because it’s important to get the grasp of the basics first – you can soon start looking into the detail with solicitors and other advisors as you progress things along.
1. Schedule of Condition
This is the technical name for a document that logs the exact condition of the property before you take a new lease, ideally by a separate building surveyor but it can be by others. Usually this includes lots of photos and descriptions and focus on obvious problem-repairs that already exist, for example a hole in the carpet or damaged walls.
Because the tenant often is liable for repairing the building whilst they‘re in there, this schedule helps limit this to only any ‘extra’ problems that occur after their lease. Without this, they can automatically be liable for all existing problems right at the end of the lease, even though they never first caused them – a killer.
This is definitely needed for when the whole property is within the lease demise and therefore liability, but also when just the internal parts are as well as these repairs can soon mount up. As an aside, also check what indirect liabilities you may get hit with through a service charge by the landlord, and see if these can be reduced, capped and restricted.
In regards to this Schedule of Condition, make sure it’s plainly referred to in the lease, as having one in itself has no purpose unless the lease specifically states that repairs are shaped by this.
2. Licence of Alterations
Then think of what changes you might be making to the premises, whether a whole new partition and office area, or simply hanging up shelves and cupboards.
This needs clearly agreeing as a separate document so it’s clear on what basis this is completed. The landlord may need to formally consent to this through the lease, therefore this document will provide that. It will also dictate what exact works are being carried out, on what timescale, and more importantly how these are removed or not removed at the end of the lease and issues such as ‘yielding up’ the property and what each party is responsible for.
This can often follow after a completed lease and you know what actual alterations are happening, but the sooner the better, and watch out for extra fees needing to be paid by the tenant for the landlord’s costs in checking and documenting this which will probably fall at the tenant’s cost once the lease is under way.
However, a negotiated share could be looked at before the lease completes.
3. Existing Information
Finally try and dig out all the information that exists regarding the condition and services at the property, whether that’s from the landlord direct or through a former tenant. Typically this includes reports such as Asbestos Surveys, electrical testing, risk assessments, and serving details of systems like the heating and fire system.
Also, consider the EPC for the property which should be available right from the beginning of the marketing of the property, but for those will low ratings this can also cause future issues with unlettability of the property in the future.
This helps go into things open-eyed in terms of what works might be required, and will help affect any future changes you have planned as well.
Don’t Get Screwed by Your Landlord
So as you look at taking a new lease on business premises, or renew any existing one that you’re already occupying, then these above three condition-factors must be looked at. They will help shape what liability you end up with, not only during your occupation but right at the end and any exit-liability.
Even if you can’t get these all agreed as you’d like, as a landlord may have a strong negotiating position if a popular property, then at least you can go into this open eyed and know what is lurking around the corner.
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