5 things a manufacturing business should consider when entering into a lease of commercial premises
1. Will you be able to do what you want to do?
Most leases contain what is called a “use clause”. This sets out what a tenant can and cannot do at the property.
Whilst the use clause is an important part of any commercial lease, it is of particular importance to manufacturing tenants as they will often need some room to expand, diversify and even adapt to new, sometimes intensive processes.
Care should also be taken to ensure the use clause is not overly restrictive. Manufacturing tenants should always check whether they need to obtain planning consent for their proposed use and should consider whether any specific permits, licences, authorisations or consents need to be obtained before you move in.
2. Will your rent change?
Landlords will typically want to increase their rents in line with the market.
If the rent cannot be agreed by both parties, then it is important to make sure there is provision for an independent expert to decide on the rent value at the time of review. It is often sensible for a tenant to ask for their rent review to coincide with the proposed break dates in the lease (if those are negotiated) so that if a tenant is not prepared to pay the increased rent, the landlord is able to end the tenancy at that point.
The frequency at which the rent is reviewed will vary depending on the length of the lease so we’d always advise tenants to ask local, qualified agents as to what the market conditions are at the time they enter the lease.
3. Early termination under the lease
Given the current uncertainty about the economy being caused by Brexit, it is always wise to consider including one or more break clauses within a lease. If you are the tenant and you run into financial difficulty that means you can’t pay the rent for any period of time, having a break clause could allow you to terminate the lease before the end of the term (usually at certain fixed points throughout the lease).
Without a break clause, you will potentially remain liable for rents for the entire remainder of the lease.
4. Will you need to alter the building?
Generally speaking, property alterations will not be allowed without the landlord’s prior consent.
Types of alterations are often divided up into minor and major works but due to the nature of the manufacturing world you may find yourself needing to progress major works (i.e. installing or removing large amounts of plant and machinery, the installation of a mezzanine floor, adding roller shutter doors, air conditioning or ventilation equipment, re-paving of access ways or adding a reception area or more office space).
It is therefore important to make sure your lease is not overly restrictive in this regard. It is also sensible to try to negotiate some flexibility as to exactly what minor alterations you can make so you don’t have to keep approaching your landlord to ask for permission to make every minor change.
5. Repairing the property
Most manufacturing businesses tend to place a higher level of strain and stress on a property than other types of businesses so care should be taken to ensure a tenant’s repair obligations in the lease are as clear as possible.
Generally, a tenant will aim to return the property in the state they first took it in so they only have to pay for general maintenance and any repair damage they have caused. Landlords however tend to want the tenant to return the property in a state that can be immediately re-let at its full market value.
The best way to avoid any disagreement at the end of a lease is to prepare a photographic schedule of condition which records the state of repair and condition at the point the tenant took possession.
When the lease comes to an end, it is seen as a fair balance of liability for the tenant to return the property to the landlord in no worse but no better a state than has been captured in your photographs.
A tenant should also expect the removal of any contamination will be their responsibility but similarly care should also be taken to make sure a tenant doesn’t find themselves responsible for any contamination left by a previous tenants. It is good practice to have an environmental survey carried out prior to taking the lease. The surveyor will identify whether there is any subsisting contamination and if there is, the tenant will be able to ask their landlord to remedy this before they take on the lease or decide not to take the lease at all if the remediation costs would be significantly high.
In our experience it is also beneficial to have liability for clean-up of contamination costs correctly allocated prior to taking on the lease.
If your manufacturing business is considering taking new premises or you are considering leasing a premises you own to a manufacturing business and you would like to make sure you start the new tenancy with exactly the right lease please email firstname.lastname@example.org or ring Paul on 0114 252 1409