Leasing out a property to businesses or other commercial tenants means making sure you’re on the same page about what’s on offer. In this post, we’ll outline the importance of clarifying extra costs, guaranteeing an equal arrangement, and offering flexibility for growing tenants.
Negotiating a Fair Contract
Above all else, tenants expect a fair lease with clear terms and a rent at or below current market rates. This could mean working on the document together — though always clarify that the final document can only be changed with both sides’ written approval.
Any fair UK lease agreement for commercial property should have the following:
- Break clauses that let either party end the agreement in certain circumstances
- Who takes care of any repairs since the tenant is usually responsible for minor ones
- A clear cap on annual service or common area maintenance charge increases
- Clarification about who is responsible for structural and non-structural changes
- Upwards and downwards rent reviews (not just pro-landlord upwards reviews)
- Details on what condition the property should be in once the tenant moves out
Always Be Upfront
You don’t want your tenant to get “renter’s remorse” right after signing. Make sure you’re upfront with them about the property, including its flaws and any necessary repairs.
This includes ensuring they know how you’ll handle maintenance requests (and how long these will take). Don’t wait for them to ask about, for example, how they can customise the space. You should be having these conversations from the beginning.
Ideally, any of these “disclaimers” will already be in your agreement; leave anything out, and you might just upset a tenant who didn’t realise what they signed up for.
Explain Common Area Maintenance Charges
CAM or service charges are a big part of any multi-let commercial lease and help landlords take care of the space as a whole. However, some landlords make the fees higher than necessary to handle upkeep that’s their own responsibility.
Here’s what service charges usually cover:
- Cleaning lobbies, corridors, and toilets
- Waste disposal/recycling
- Window cleaning
- Security staff and CCTV systems
- Landscaping
- Car park management
- Heating and lighting in shared spaces
However, this isn’t an exhaustive list. Please note that you can’t use this money for renovations that don’t affect the building’s functionality. You should only charge for what the space needs; be transparent about this.
There are three main routes you can take for charging service fees, namely:
- Fixed: The tenant pays an estimated amount, regardless of the actual amount
- Variable: The tenant pays the actual amount, with the estimated total as a deposit
- Proportionate: The tenant pays based on how much of the space they occupy
Set Standards for Communication
Make sure your tenants know when and how to contact you; this includes when you’re available and if they should get in touch via email, text, or phone. They shouldn’t expect instant replies at any time; it might even help to set “landlord hours.”
However, you’ll still have a responsibility to respond to issues — for emergencies, this should be within 24 hours. More minor problems won’t be so urgent, though you must still at least reply to them as soon as possible.
This also means updating these tenants and any others about new building works with as much notice as possible. Your own tenants shouldn’t be surprised by ongoing construction work that could easily affect your revenue.
Consider Keeping the Lease Flexible
Your commercial tenants will want to expand if they suddenly reach a growth stage, and it’s your responsibility to accommodate this. Here are a few extra clauses that help you offer flexibility for growing tenants:
- Right of first refusal/offer for any adjoining or nearby available spaces
- Exclusivity clauses that stop you from renting units to their competitors
- The right to fully relocate to a larger unit that fits the surge in demand
- Specific “expansion triggers” that initiate a more formal review process
Alternatively, if a tenant’s company is going through a dry spell, you can offer them to move to a cheaper, smaller unit. This lets you hopefully keep them as a valuable tenant while leasing the previous, larger space to someone new.
Clarifying Value for Tenants
Being upfront also means making sure tenants know a space’s value. This can involve outlining key anchor tenants who’ll bring in more traffic, though they may request a break clause in case the anchor tenant leaves.
Tenants expect a high-quality space that fits their business; for example, offices need peace and quiet to carry out their work. Meanwhile, shops want to be next to brands that complement them and aren’t direct rivals.
Final Thoughts
Honesty is always the best policy for managing a commercial tenant’s expectations. A thorough custom commercial lease is also essential, as this lets you and the tenant negotiate terms that suit both sides, no matter how they use the property.
