What are heads of terms? Commercial lease advice for smaller and medium sized businesses in Jersey
While the astute entrepreneur or director is always wary in his or her business dealings of ensuring that the product or service is best dealt with, there are a minority that do not devote the same amount of time and reflection to the matter of business premises. The focus being on price per square footage, not necessarily as to other factors which could have a significant impact in the future on your business.
It is generally a false economy not to engage an appropriate team of professionals to assist you with your smaller medium business leases. The old adage that you ‘don’t know what you don’t know’ comes to mind and is apt in this scenario. A business lease is not an insignificant venture and, as such, a number of issues (legal and otherwise) need consideration.
You want the new premises to work for your business and you need to have your eyes wide open when signing on the dotted line. Here are a few fundamental points to consider (this list is not exhaustive):
Heads of terms
Always agree fundamental terms, in relation to your smaller medium business lease, in principle so that when you instruct your lawyer they have a frame of reference within which to work.
Use of premises
You will need to ensure that the lease allows you to use the premises for your intended purpose. Although this sounds simple enough, it is an easy trap to fall into, especially if your plan is to alter or add a different arm at a later stage.
For example, the use defined may be for a restaurant; however if, at a later stage, you want to include a takeaway service you would need to check if there is an allowance in place for off-premises consumption.
Altering the lease at a later stage could become costly and, in the event, if the alteration of use is not granted your business to could lose a stream of income.
Do not make the mistake of assuming that the stated use of the premises is comprehensive.
Length of lease
SME’s (small and medium-sized enterprisess) hould be cautious when determining the length of the lease. If your business performs better than expected, you may need to move premises. What happens if you don’t have any mechanism to sublet or assign the lease? Do you want to consider a break clause? Will this increase the rental? Locking yourself into a long term lease could prove difficult and expensive to terminate, if indeed you can.
Limiting dilapidations and repair liability
This is generally one area that tenants do not fully consider. When moving into your new premises the last thing on your mind is what will happen at the end of your tenancy. Depending upon your obligations you could find yourself paying a significant chunk of your hard earned profit to repair the premises. It is always advisable to employ an appropriate professional to review the condition and negotiate appropriate wording, to protect you should there be issues as to condition. This may prevent potential costly disputes at the end of the tenancy.
Overall, the advice is to be wary about entering into a commercial lease without at least obtaining some general legal advice as to the implications. It could save you a lot of time and effort in the long run.