What is a commercial lease? Initial advice for a Jersey start-up business
Starting a new business is exciting. You should always take advice as to areas you may not be familiar with, especially if you are thinking about taking on a commercial lease startup. All leases are complicated documents, potentially full of costly pitfalls, which an untrained eye may not pick up.
Please bear in mind that, as it is the Landlord’s building, they are perfectly entitled to say no to many, or all, of the suggestions we make, even if it appears completely unreasonable to do so. In such circumstances, you need to weigh up the pros and cons of agreeing to the Landlord’s requirements or seeking alternative premises.
Here are a few things to consider in a commercial lease start-up.
Consider who will be the tenant
You may want to start trading as a limited company, or indeed a partnership. If so, make sure that the lease reflects this.
Be aware that most commercial landlords in Jersey will look for some form of third party protection, to guarantee performance of obligations under the lease. This may be in the form of someone providing a guarantee or perhaps a deposit.
Jersey leases typically seek quarterly advance payments of rental. For a new start-up, you may wish to consider monthly payments, to assist with cash flow. Also, make sure consideration is given as to how the Landlord seeks to increase future rental. Check the proposed terms as to whether this is to be JRPI, or in line with market or both.
You need to consider service charges. This is a cost usually found in a commercial lease and allows the Landlord to recoup additional costs from you. In general terms, Jersey leases will contain such a clause. As such, consideration should be given to limiting your exposure to these costs.
Planning Consent – Use
You must always make sure that you are allowed to use the property for the use you intend. The Jersey planning department strictly regulates the use of all buildings in Jersey. It is not uncommon to discover tenants occupying property without appropriate use consent, which is an offence.
You should be careful to consider what responsibilities you have in relation to repairs and decoration. Never underestimate how much it may cost to maintain and keep your office space in good repair. It is always good practice to request a schedule of condition at the outset, so you can use this as a benchmark.
You will need to consider what works are required. All leases will have considerations as to what you can and cannot do regarding works at the premises. Generally, tenants will need permission to carry out works, and this not only from the Landlord but also from Jersey planning and building control. This will include partitioning.
While stating the obvious, you need to ensure that you have permission to carry out the works you plan (at least in principle) before you enter into the lease.
Rent Free Periods
If the property requires a fitting out, this can be time-consuming and may prevent you from using the space, notwithstanding having taking on the lease. As such, you should be considering asking the Landlord for a rent-free period. Otherwise, you will have a burden without any income.
Right to assign
You should always ensure you have a right to assign the lease. That way, you know that you won’t have to find a way of keeping up with rental payments until the end of the lease for a Property you would rather be without.
Tenant’s Break Clause
Always consider a break clause in the lease. It might be especially useful to have a right to break relatively early on, such as at the third anniversary of the lease, so that if the business really isn’t working out, at least you can get out of the lease with minimum fuss. However, one should note that this may have an effect on rental levels; it will all depend upon negotiation.
There are numerous other issues to consider, but this overview should give you an idea of some of the points to look out for. Please remember that legal advice at the outset could save you a lot of money and angst in the future.