What does a scaling business need to consider when exiting or agreeing a commercial property lease?

Scaling up businesses will have many challenges. Invariably one of them will be the property needs, and the importance of ensuring the business’ real estate promotes and doesn’t hinder future business plans, needs and growth.

This article provides scaling businesses with advice when exiting or starting a commercial property leaseholds, to ensure a smooth transition to a new property.

Ensure that the terms of a lease are ‘fit for purpose’

As with any commercial contract, in our experience it’s essential to ensure that the terms of a lease are ‘fit for purpose’ and suitable when the lease of new premises is taken. This includes:

• The rent and how that is reviewed in the future.
• IT services.
• The capping of service charges, to ensure there are no nasty surprises.
• Suitable ‘user’.
• Sharing occupation with connected businesses if appropriate.

Consider whether you will be able to exit the lease on acceptable terms

It's also important to ensure that if and when the need will likely arise in the future, it will be possible to exit the lease on acceptable terms. A business’s property needs can often change very speedily. Therefore thinking ahead and contemplating an exit in the future with suitable contractual provisions in the property lease is also key.

Ensure you have a contractual right to break the lease

When entering a new lease of commercial premises, any business that is scaling up may wish to ensure that is has a contractual right to break (determine) the lease. This may increase the rent, but the flexibility a break right can bring is often key. A break right must be carefully negotiated and drafted so as to ensure it’s not overly punitive for the tenant and cannot be frustrated by the landlord, for example if it’s conditional on tenant lease covenant compliance. 

How can a scaling up business protect itself from dilapidations?

When exiting property, dilapidations (repairs) are frequently an issue, as is the tenant’s obligation or otherwise to reinstate any fitout etc. These issues also need to be thought through at the outset. 

A scaling business can protect and future-proof itself to an extent by ensuring the lease includes a pre-agreed schedule of condition, and that any key dates that the lease contains are fully understood by the scaling up business.

Invariably with commercial property, planning and thinking ahead is key – as the saying goes, fail to plan and plan to fail.

For further information, please contact the property disputes team.