How to secure your commercial premises

Get it right from the start

Securing your commercial premises is one of the biggest financial and legal commitments you’ll make. Your most important action is to hire a specialist commercial property solicitor before you sign anything. They will review the lease or purchase agreement, negotiate on your behalf, and explain your obligations, protecting you from potentially costly mistakes. This is not a DIY task; the contract you sign will be legally binding for years to come.

Leasehold vs. Freehold: What’s the difference?

For most new businesses, you’ll be dealing with a lease. It’s important to understand the two main ways you can occupy a property:

• Leasehold: This is essentially a long-term rental agreement. You have the right to occupy and use the property for a set number of years (the 'term') in exchange for paying rent to the landlord (the 'freeholder' or 'lessor'). You will not own the property.
• Freehold: This means you are buying the property and the land it stands on outright. It gives you complete ownership and control but involves a much higher initial cost and is less common for startups.

The Leasing Process: A Step-by-Step Guide

Once you’ve found a property and verbally agreed on the main terms with the landlord or agent, the legal process begins. Here’s what to expect.

1. Heads of Terms (HoTs)

The first document you’ll see is the Heads of Terms. This is a summary of the main points of the deal, such as the rent, the length of the lease, and responsibilities. While it’s not usually legally binding, it forms the blueprint for the formal lease agreement, so it’s vital to ensure it accurately reflects your understanding of the deal before solicitors are instructed.

2. Instructing Your Solicitor

Your solicitor’s job is to act in your best interests. They will carry out a process called 'due diligence' to uncover any potential problems with the property or the lease. This includes:

• Conducting Searches: They will perform searches with the local council and other bodies to check for issues like planning restrictions, upcoming road schemes, or environmental contamination.
• Reviewing the Title: They check that the landlord legally owns the property and has the right to grant the lease.
• Negotiating the Lease Agreement: They will meticulously review the draft lease sent by the landlord’s solicitor.

3. Key Lease Clauses to Understand

A commercial lease is a long and complex document, but your solicitor will pay special attention to these critical areas:

• The Term: How long does the lease last? A shorter term with an option to renew can offer more flexibility for a new business.
• Rent and Rent Reviews: The lease will state the initial rent, when it’s due, and how it can be increased in the future (a 'rent review' clause).
• 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, for example, after 3 years on a 10-year lease. It’s a vital safety net if the business doesn’t perform as expected.
• Repairing Obligations: Be very careful here. Many commercial leases are ‘Full Repairing and Insuring’ (FRI), which means you are responsible for the cost of all repairs and maintenance for the entire building, not just the part you occupy. This can lead to huge, unexpected bills.
• The ‘Use’ Clause: This clause specifies what you are allowed to use the premises for (e.g., as a café, office, or shop). Make sure it’s not too restrictive and allows for your business to evolve.
• Alterations: The lease will state what changes you can and cannot make to the property. You will need the landlord’s formal consent (a 'Licence to Alter') before you can begin any fit-out work.

Top Tip: Before you commit, it is highly recommended to hire a chartered surveyor to conduct a 'schedule of condition'. This is a detailed report with photos that documents the exact state of the property before you move in. It can be attached to the lease to limit your future repair obligations to maintaining the property in the same state you found it, rather than having to improve it.

4. Signing and Completion

Once you and your solicitor are happy with the terms of the lease and all checks are complete, you will sign the final documents. Upon 'completion', you pay the first quarter's rent, any deposit, and your solicitor's fees. You will then be given the keys, and the property is officially yours to occupy.