How to negotiate a lease

Here's our guide to negotiating the terms of a lease

A landlord’s ideal tenant will be financially stable and willing to take responsibility for things like insurance and repairs. However, this is rarely the case.

A lease, like all contracts, is ultimately negotiable, meaning that various aspects of it can be discussed between owner and tenant before anything is signed.

Here are a series of lease terms that can be negotiated:

The lease length

Leases can last anywhere between six months and twenty-five years. Most businesses will be looking for longer leases as a form of future security, but you don't want to be locked into agreement if your business future is uncertain.

Break clauses

Tenants need to be aware of break clauses. A break clause is a term in a tenancy agreement that will enable the tenant to leave before the lease ends. A conditional break clause means that the tenant must meet certain conditions so the break notice is effective.

Tenants should try and negotiate for an unconditional break clause when discussing the Heads of Terms (HOTS) with a landlord before a draft contract is issued. If a landlord believes a tenant has failed to comply with the terms of a break clause, there can be financial consequences for the occupier.

Stamp Duty

Another issue to consider is Stamp Duty Land Tax, which will vary depending on the length of the lease. If you negotiate that you want a shorter term, but the option to renew it, you can reduce the amount of tax you then have to pay.

The rent

Rent reviews, which analyse if the rent paid is still in-line with government recommendations and inflation, usually occur every five years, but landlords will push for three-year periods as it may give them an excuse to increase the rent more regularly.

As a tenant, try and negotiate for longer rent review periods, and also stipulate that rent reviews should be both upwards and downwards depending on market conditions, even if the landlord states that rent reviews are upwards only.

Repairs and maintenance

If there are 'full repairing and insuring' terms on the lease, the tenant can end up spending a lot of money on maintaining a property.

If you negotiate that you will keep the property in the same condition as when you first started the lease, landlords will be liable for the cost of any additional changes. A general rule is that tenants should look after the interior while landlords cover exterior and structural repairs.

Within this, if a tenant wants to make minor alterations to a property, such as removable partitioning, they should negotiate beforehand that these can be done without landlord consent being needed.

Sub-letting

If a tenant finds that the space they needed was vastly overestimated, they may consider sub-letting the additional space to another tenant as an extra revenue stream. However, a landlord will be concerned that the new party may not fulfil tenant obligations or may still be around once the overall lease ends. These issues need to be discussed during initial negotiations.

Before any negotiations occur, it is important that the tenant understands basic lease terms. If in doubt, seek legal advice from a solicitor.



Adam Turnbull

About the author

Adam manages all editorial content on BusinessesForSale.com as well as on all other titles in the Dynamis stable. He has written and commissioned content on a wide range of business topics, producing news, comment and market analysis.

@adamturnbulluk