Depending on the property market at the time and your bargaining position, you could reduce your fixed overheads and improve the efficiency of your business by negotiating more favourable lease terms.
When you begin negotiations with your prospective landlord, you may wish to consider some of the following issues.
Rent Review
A lease without any review of rent would be the most favourable option but you are unlikely to successfully negotiate this in any long term lease without paying a higher than market rent at the outset.
The next best alternative is a lease with an upwards and downwards rent review. Whilst some landlords are prepared to offer either way reviews, such leases are not common.
Some landlords may offer annual RPI linked reviews, which allow tenants to more accurately predict the rent after review, as well as spreading the cost of the increase over time rather than having to suffer a large increase every five years.
In shopping centre developments, landlords may suggest a “turnover rent”, i.e. a rent linked to sales. The trigger for such payments needs to be carefully considered.
Rent Free Period
Obviously it is advantageous to negotiate as long a rent free period as possible, particularly if you intend to carry out an extensive shop fit.
Alterations
You need to be certain that any alterations you plan are permitted under the lease. Generally tenants are obliged to reinstate any fit out works when they vacate the premises.
Repair
Tenants usually have an obligation to put and keep the property in good repair. In a short lease, you should insist that the repairing obligation is limited to keeping the premises in the condition they are in at the date of the lease.
Term
When agreeing how long a lease term to take, you should consider requesting a right to break, that is, a right to end the lease before the expiry of the term. This will give you maximum flexibility.
Assignment and Subletting
You should ensure that there are no onerous restrictions on disposing of the premises. Consider also whether you need the ability to share occupation of the property with concessionaires, franchisees or group companies.
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