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A helpful guide to taking a commercial lease

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Taking a commercial lease represents a huge investment and commitment with regards to time and finances for a business. We have therefore set out below a guide with the basic steps of obtaining a commercial lease.

1.         Instructing a Solicitor

Committing to a commercial lease involves negotiating with the other side, as well as dealing with legal formalities such as registering the lease. When instructing a solicitor, you will be sent their Terms of Business together with a Client Care Letter detailing your instructions, and the fees attached to the transaction. You will also be required, as a matter of law, to provide identification documents before any instructions are accepted by your solicitor.

2.         Heads of Terms Agreed Between the Parties

The Heads of Terms document sets out the main information regarding the lease, including the rent which is payable, whether the lease can be assigned, and the parties to the transaction. The Heads of Term are prepared by the estate agents and sent to the parties of the lease and their solicitors to review. After reviewing this, the solicitor will clarify your instructions, and how you wish to proceed. It is important to take legal advice before agreeing to the Heads of Terms; once these terms have been agreed, it is difficult to negotiate an amendment should your solicitor advise that one is needed.

3.         Drafting the Lease

The Landlord’s solicitor will draft the lease and forward this onto the Tenant’s solicitor, together with Energy Performance Certificates, title documents proving the Landlord’s title and the Landlord’s replies to a standard form of enquiries relating to the property, for example its past use or any previous works on the property

4.         The Tenant’s Solicitor

Once the Tenant’s solicitor has received the draft lease, they will carry out their due diligence in accordance with your instructions. This will include reviewing the terms of the lease, especially looking into whether there are any assignment clauses, break clauses and rent review dates. The solicitor will also consider the CPSE, and if any of the answers are vague, this will be raised with the Landlord’s solicitors.

The due diligence process will usually be the longest stage of the transaction. This of course will depend on various factors such as the turnaround time from the searches, and the speediness of the replies from the Landlord’s solicitors.

5.         Lease Agreed

Once the due diligence has been conducted, your solicitor will discuss their findings with you and ask how you wish to proceed. This may include advice on any defect of the property or any specific provisions of the lease. At this stage, the lease will be negotiated and both solicitors will be in constant communication with each other, and their respective clients’ to agree the lease. Once agreed, both the Tenant and Landlord will be required to sign an engrossed copy of the lease together with any other documentation that may be applicable to your matter, (such as a rent deposit deed).

6.         Completion

Once the Tenant and Landlord have signed their respective parts of the lease, the solicitors will complete the lease over the telephone, and will notify both parties that the lease has completed. At this stage, the Tenant will be entitled to exclusive possession of the property.

Although the lease will have completed, the Tenant’s solicitor will have to carry out post-completion steps. Upon completion, Stamp Duty Land Tax may be payable (depending on the length of the lease and the amount of rent payable each year) and there is a 14 day deadline to make this payment, starting from the day of completion. In addition, if the duration of the lease is over 7 years, the lease will need to be registered at the Land Registry.

If you have a question or would like advice about a commercial lease, please contact a member of our Commercial Property team.