Market Insight

How to get the most out of your lease deal

January 25, 2016

It may not constitute a huge priority in terms of your overall business objectives, but your ability to negotiate a good lease deal can have a significant impact on your bottom line.

By its very definition, the term lease denotes a contract between a landlord and a tenant, so it makes sense that it should be negotiable. The only slight hurdle is that the art of negotiation is somewhat foreign to us.

However, there are a number of things that you can consider in order to maximise your deal and here a few tips to get you started.

1. Before entering into a lease, make sure you fully understand the terms

It goes without saying that before you enter into any agreement, you should do your homework. This is especially true of your lease agreement. Make sure that you understand the impact of each and every aspect of it, as well as the potential impact that any unforeseen circumstances might have on your agreement. If you don’t fully understand it, then seek professional advice to ensure that you do – investing now could prove an economical investment further down the line.

2. Think about the lease terms and how this fits with your business objectives

You might be presented with a deal which, on the face of it, appears to be a fantastic fit for your business’ needs in the here and now. However, if the terms of your lease span 7 years, for example, think about how your business might change in that time. To what extent will your workforce grow and does the property you have in mind meet your potential needs in the future?

3. Seek advice on how to achieve a lower rent, rent free period or incentive package

Don’t be afraid to push for a better rent per square foot, or an initial rent free period or incentive package. You’d be surprised at what you can achieve by just asking the question. The art of negotiating like this might feel a little uncomfortable, but by seeking professional advice to help in this area, you can potentially negotiate a much more advantageous deal.

4. Consider the flexibility of the lease or rental agreement

Make sure that you take into account the flexibility of the terms of the agreement. If your business has contracted and you have lost a number of staff, to what extent would the lease flex, to support your business during this time for example can you sublet part or share possession?

The important aspect here is to ensure that if you do sub-let, the agreement is in line with the terms of your own lease timescales – no landlord wants to be left with a tenant that they can’t then replace or compliment with another.

5. Understand the break clauses

Further to the flexibility of your lease, if you have any break clauses in your lease, make sure that you fully understand how to exercise these.

Depending on what is agreed which either the landlord, tenant, or both, the break clause can be exercised in order to end a lease early. Be sure to fully understand the conditions of the break clause from your landlord’s perspective, and if you have a tenant-only break clause, try to negotiate a clause with as few conditions as possible.

6. Research your repairing obligations

This can be something that comes back to haunt you at the end of your lease agreement, so it’s important to understand what you are obliged by your landlord to do in terms of repairing any ‘damage’/”wear and tear” to the building. If you are a long term tenant but eventually expand into new premises, are you obliged to put the building back to its original status in terms of structure and layout? Your landlord may have approved the construction of the mezzanine to create a second floor for your staff, but you may be obliged to remove it and put the office back to its original status under the terms of your lease.

7. Don’t be scared to challenge your service charge obligations

Many firms simply take the service charge that they are asked to pay as read, but this may not necessarily have to be the case. Check that you are only being asked to pay for what your lease says you have to pay for, and query if this does not appear to be the case.

Also there can be a number of different tenants in one building, each paying different service charge rates depending what they negotiated with the landlord at the start of the lease. It may therefore be possible to negotiate a service charge cap as part of the initial lease negotiations.

8. Get to grips with Section 44A relief which could make you exempt from paying business rates for a period of time.

In the event that the building you occupy is half empty, you may be entitled to something called Section 44A relief. This is a temporary relief of payment of your business rates. It’s a discretionary power and can only be awarded for a maximum of 3 months for offices, or 6 months in the case of industrial properties, but could save your business a significant amount of money.

By getting to grips with your lease terms and seeking professional advice to help you understand how to maximise the terms for your benefit, you could save your business a great deal of expense over the duration of your lease – just by practicing that very un-British art of negotiating.

For more advice or to speak with a member of our team about the terms of your current or potential lease, don’t hesitate to get in touch with us.