Do I really need a lawyer to check my lease?
With many businesses looking for ways to save money, entering into a lease without seeking legal advice can be a tempting option. However, there are a number of risks that you need to consider if you decide to do this.
There are some key bits of information that you might miss out on, almost all of which could result in increased cost to you as the tenant in the future. A solicitor will be able to look at the lease, the property and your business, and help to ensure that there are no hidden surprises. Proceeding without advice can be a risky strategy and a false economy. Is it really worth a short term saving if there are long term costs that could have been avoided?
What sort of tricky issues can cause problems for tenants, and what should you be looking out for?
Leases are normally drafted on a landlord-friendly basis, requiring the tenant to take on full responsibility for the property. This can have significant consequences for a tenant, as they can become liable for all sorts of costs that they did not expect. Even if you think you have a good relationship with your proposed landlord, you may still find a few surprises in the lease.
Heads of Terms
Have heads of terms actually been properly put into the lease? You may think you have agreed something with the landlord, but has their solicitor put it into the lease correctly? The landlord’s solicitor acts for them, so will prepare the most landlord-friendly option; this may mean they omit something that would be for your benefit.
Condition of the property
A key issue for any tenant is that they can end up taking over responsibility for the acts of previous tenants, becoming responsible for things they did not do. For example, leases nearly always require tenants to return the property in excellent condition, even if was not in excellent condition when they took on the lease. This means that at the end of their lease, a tenant could be hit with a huge repair bill for damage they did not cause. Your solicitor can recommend ways to reduce this liability, or refer you to a surveyor to advise on the extent of that potential liability, so that you enter the lease properly informed.
Planning and Building Regulations
Has the landlord or a previous tenant carried out any alterations? If those alterations do not have the required planning and building regulations consents, leases normally require tenants to carry out any remedial works that may be required by the Local Authority at any time, even if the tenant did not carry out the original works. This can be expensive if it is not properly considered when you enter into your lease.
If you have agreed a break clause, can it actually be exercised? Tenants can spend a great deal of time agreeing an early exit date for their lease. However, it is common for landlords to impose conditions on tenants before a break right can be exercised. These conditions can be anything from paying three months’ rent, through to having to have fully complied with the lease terms. Full compliance with the lease terms can be a big problem for tenants – just a minor breach (such as a failure to repair a small item or area) could mean that a request to break is invalid. The tenant is then required to keep the lease for the rest of the originally agreed term, paying full rent and complying with all of the lease terms. This can be very costly for an unsuspecting tenant.
Make sure that you know what needs to be done if you want to exercise a break clause, so you can comply with the conditions at the relevant time, and get out of the lease when you require. A solicitor can negotiate landlord-friendly terms to ensure you have the best chance of being able to easily exercise your break.
Transferring the Property
In future you may want to move to bigger or smaller premises. Can you transfer the property to someone else without difficulty? Can you underlet, and if so, are there terms which will make this more difficult? It is usual for landlords to impose conditions before they will allow someone else to occupy their property. Some of those are fair, and required to protect the landlord. Others may make it unduly difficult for a tenant to transfer the lease. You could be forced to keep paying the rent, even if you are not using the property, because certain lease terms prevent you from allowing anyone else to use it.
Can you make any changes to the property that you need, to enable you to operate? Landlords usually restrict what alterations can be made in their leases, so you should be aware of what you can and cannot do. You will likely have to pay their fees for consenting to any alterations. If you can make changes, usually the landlord can impose conditions, including requiring you to remove the alterations at the end of the lease. This can have cost implications which you should be aware of from the outset.
When the rent is reviewed, are the provisions for that fair? Will they artificially inflate the rent so the landlord will receive more rent than they should? You will want to be sure that there are appropriate provisions in place to deal with what will happen if there is a dispute about the revised rent. Not being properly advised now can be costly in future, especially if you have a long lease with several rent reviews.
Is there a requirement for a rent deposit? If so, are the terms fair and is your deposit properly protected? You will want to be sure that you have the best chance of getting your money back as soon as possible at the end of the lease.
If you are taking a lease of part of a property, you will likely have to pay a service charge to cover the costs of looking after the main structure of the building and any common area. Will you only be paying for the services you receive, or could you end up paying more than you should? You’ll want to know that the landlord has repairing obligations, so that the main structure and common areas of the building will be properly maintained.
Who will be responsible for insurance, and on what terms? If the property is damaged by an insured risk, you may have to keep paying rent, even though you cannot use the property. If the landlord never rebuilds the property, can you end the lease if the landlord is unable to repair it in a reasonable time frame? If not, then you could be paying rent for something you cannot use, and may never be able to use.
Security of Tenure
At the end of the term, you may want a new lease. Do you have a right to one, or has the landlord excluded this statutory entitlement?
Each of these items all has one thing in common; if not looked at properly, they could cost you money in future, and in much more significant sums than the cost of having a solicitor look at the lease in the first place. You are entering into a long term contractual arrangement, which places significant obligations on you. Is proceeding without legal advice really worth the risk?