How to secure a lease on a retail property

Securing a lease on your retail property is one of the biggest financial commitments you'll make. Before you sign anything, the single most important step is to have the draft lease reviewed by a solicitor who specialises in commercial property. This is not a place to cut corners; their advice can save you from costly mistakes and ensure the terms of the agreement support your business's future success.

What is a Commercial Lease?

A commercial lease is a legally binding contract between you (the tenant) and the property owner (the landlord) that gives you the right to use the premises for your business for a set period. Unlike residential leases, commercial agreements are less regulated, meaning most of the terms are negotiable. This is your opportunity to shape a deal that works for you.

The Key Steps to Securing Your Lease

The process generally follows a clear path from initial agreement to getting the keys in your hand.

1. Agree on the Heads of Terms (HOTs): Once you've found a property and verbally agreed on a price, the landlord's agent will draw up a document called the Heads of Terms. This isn't usually legally binding but outlines the main points of the deal, such as the rent, lease length, and any special conditions. Check this carefully before proceeding.
2. Instruct a Solicitor: This is the crucial step. Your solicitor will handle the legal due diligence, including performing searches on the property to uncover any issues. They will receive the draft lease from the landlord's solicitor and review it line by line on your behalf.
3. Negotiate the Lease Terms: Your solicitor will negotiate the finer details of the lease. It’s vital you understand what you’re agreeing to. Pay close attention to these key clauses:

Crucial Lease Clauses to Understand

• The Term: This is the length of the lease. A shorter term of 3-5 years with an option to renew might be preferable for a new business, offering more flexibility than being locked in for 10 years or more.
• Break Clause: This is one of the most important clauses for a new business. A break clause gives you the right to end the lease early at a specific point (e.g., after 3 years on a 5-year lease). This provides a vital exit strategy if the business doesn't perform as expected or you outgrow the space.
• Rent and Rent Reviews: The lease will state the initial rent and the dates for future rent reviews. Be aware of "upwards-only" rent reviews, which mean your rent can go up at the review date but never down, even if market rates have fallen.
• Repairing Obligations: Many commercial leases are "Full Repairing and Insuring" (FRI), which makes the tenant responsible for all repairs and insurance costs. To avoid paying to fix problems that existed before you moved in, insist on a "Schedule of Condition". This is a photographic and written report detailing the property's condition at the start of the lease, limiting your repair liability to maintaining it in that same state.
• The 'Use' Clause: This clause specifies what you are permitted to use the premises for (e.g., "as a retail bookshop"). Ensure this is not too restrictive and allows for potential future changes, like adding a small coffee counter.
• Alterations: The lease will detail whether you can make changes to the property, such as putting up new shelving or changing the layout. Usually, you will need the landlord's consent for any structural changes.

A Quick Tip: Don't forget to budget for extra costs beyond the rent. You will likely be responsible for a share of the building's service charge (for communal area maintenance), buildings insurance, and your own solicitor's fees. These can add a significant amount to your monthly outgoings.

Signing and Completion

Once negotiations are finished and you are happy with the final draft, you will sign the lease. The process is complete when the lease is dated, the first quarter's rent and any deposit are paid, and you can finally pick up the keys. Congratulations, you have a home for your new business!