Crazy to sign commercial lease with no "break clause"?

gluppers

Hi. I have been offered the lease of a commercial property for 15 years. The contract has no break clauses. I've been told there's no negotiation on this.

I'm confused now whether I should go ahead with the lease agreement. If my business fails and I can't continue the lease, will the consequences be insurmountable?

Any advice is very much welcome

Bananaleaf

gluppers wrote: »

Hi. I have been offered the lease of a commercial property for 15 years. The contract has no break clauses. I've been told there's no negotiation on this.

I'm confused now whether I should go ahead with the lease agreement. If my business fails and I can't continue the lease, will the consequences be insurmountable?

Any advice is very much welcome

Why would you be considering signing it? Is it a particularly good deal? Whether or not it will be insurmountable is something only you can assess - essentially, if your business fails and you can't continue the lease - what happens? Do you have to place some kind of collateral down? Can you legally be pursued for the money? How will it affect your ability to be able to reenter the market if you default?

Also, on a more mindful note - is the money you will save (if any) by opting for this deal worth the stress and anxiety it will cause you for the next 15years?

antoinolachtnai

Is this some sort of business where you sell to the public from the premises?

davo10

You are entering into a contract with yours eyes open. You know the terms before you sign the contract. If they are not to your liking, walk away and find another property. If you form a limited company, then the company is liable for the contracted terms, if you sign it in a personal capacity, you personally are liable.

CeilingFly

Commercial leases without a break clause is fairly normal.

The more important thing is not to sign a personal guarantee and if they absolutely insist on a guarantee, have it at a fixed amount (3 months rent)

But commercial lease is quite different to a house lease. You have automatic rights to renewal and there is little issue in transferring it on

Personally I'd look for a 10 year lease.

gluppers

gluppers wrote: »

Hi. I have been offered the lease of a commercial property for 15 years. The contract has no break clauses. I've been told there's no negotiation on this.

I'm confused now whether I should go ahead with the lease agreement. If my business fails and I can't continue the lease, will the consequences be insurmountable?

Any advice is very much welcome

Hi, thanks for your replies on this


I meant to include in my original post that there is a subleasing option in the contract if my business fails. The condition is I need to find someone to sublease to, but with a similar business. My business will be a coffee shop on North Earl street, Dublin 1.

I'm hoping this is a vibrant enough area to attract a potential sub leasing candidate if need be

CeilingFly

gluppers wrote: »

Hi, thanks for your replies on this


I meant to include in my original post that there is a subleasing option in the contract if my business fails. The condition is I need to find someone to sublease to, but with a similar business. My business will be a coffee shop on North Earl street, Dublin 1.

I'm hoping this is a vibrant enough area to attract a potential sub leasing candidate if need be

Coffee shop in central Dublin surrounded by hundreds of other coffee shops?

Unless you have something very different it will be extremely difficult for you.

You'll also need to ensure planning permission is right for the use along with all the health and safety rules and regulations. - If its the unit I see on daft, then its a nice unit, but I would suspect there's an issue with getting planning for coffee shop as one of the chains would ahve picked it up by now.

You can have an informal chat with planning dept in DCC.

antoinolachtnai

For this type of situation you absolutely need a long lease to protect your own interests.

What does your solicitor say? What does your agent (real estate agent working on your behalf) advise?

If you don’t have these advisers, please, you need to get them. You are not sufficiently knowledgeable about the topics to Do without proper advice.

This particular street has its own particular challenges.

gluppers

antoinolachtnai wrote: »

For this type of situation you absolutely need a long lease to protect your own interests.

What does your solicitor say? What does your agent (real estate agent working on your behalf) advise?

If you don’t have these advisers, please, you need to get them. You are not sufficiently knowledgeable about the topics to Do without proper advice.

This particular street has its own particular challenges.

My solicitor is pushing hard for the insertion of a break clause or two

He also says that being able to fall back on a subletting is risky, but that it's a good are to attract possible tentants

I'm very unsure about this. It's decision time too as the deadline to sign this contract is next week

Real estate agent seems to be siding with the landlord's right to not have a break clause

15 years is very long

antoinolachtnai

It sounds like you are relying on your solicitor for real estate advice. Unless he is an expert in D1 real estate this is unwise. Relying on the right to sublet is absolutely ridiculous. You need to be able to assign.

gluppers

antoinolachtnai wrote: »

It sounds like you are relying on your solicitor for real estate advice. Unless he is an expert in D1 real estate this is unwise. Relying on the right to sublet is absolutely ridiculous. You need to be able to assign.

Sorry, your last point? "You need to be able to assign"

I'm not clear on that

The_Conductor

gluppers wrote: »

Sorry, your last point? "You need to be able to assign"

I'm not clear on that

Its the right to assign the lease to a subsequent tenant and walk away from any contractual agreement you have with the landlord (obviously the subsequent tenant would have to be of equivalence to yourself- and the landlord should be no worse off financially as a result of the assignment of the lease).

Subletting is a pain in the proverbial- seriously, don't go there.

antoinolachtnai

My point is that you are not knowledgeable about the topic. You don’t even know the basic jargon. That’s ok, you’re an aspiring coffee shop operator not an estate agent. But this May well be one of the most important transactions of your career and you do need proper advice. The advice your solicitor is giving you and his negotiating ‘strategy’ does not inspire confidence either but obviously there is a bigger context.

CeilingFly

In a commercial lease a landlord cannot reasonably not permit assignment of a lease to another equal or better entity.

Op is a small independent trader, so there'll be little issue if assignment is required.

The landlord would have opportunity to match any assignment offer and take back possession on the same terms.

Victor

Do you have experience running a coffee shop?

You should delete the reference to the street this is on - you never know who is reading.

kirving

If you're going into this, you need to have an interent understanding of all involved. You don't seem to have this, yet. (Nor do I btw) 15 years is a very long time.

Think about how things go in and out of fashion, 15 years ago there was nowhere near the number of coffee shops as there are now, it can go the opposite way too.

pinkypinky

The length of lease is quite standard - I've seen double this. As others have said, the main thing is ability to assign, which the landlord should not unreasonably withhold. It'd be normal enough to have one break clause, say at 5 years when the rent is reviewed, which may be enacted by either party with agreed terms (i.e. 3 months notice in writing).

ted1

gluppers wrote: »

Hi. I have been offered the lease of a commercial property for 15 years. The contract has no break clauses. I've been told there's no negotiation on this.

I'm confused now whether I should go ahead with the lease agreement. If my business fails and I can't continue the lease, will the consequences be insurmountable?

Any advice is very much welcome

Depends what type company you form, if the company folds that’ll break the lease without any come back to you

Victor

ted1 wrote: »

Depends what type company you form, if the company folds that’ll break the lease without any come back to you

The problem there is that landlords insist on personal guarantees.

homerjay2005

CeilingFly wrote: »

Coffee shop in central Dublin surrounded by hundreds of other coffee shops?

Unless you have something very different it will be extremely difficult for you.

the other side of this is one of my best mates set up a coffee shop a couple of years back and now its a thriving franchise that made them alot of money - they have already sold on the business and the lease it came with.

if you are driven enough, it can and will work.

CeilingFly

Victor wrote: »

The problem there is that landlords insist on personal guarantees.

Easy enough to put a limit on such guarantees - usually 6 months rent is acceptable or a fixed limit, 3 months would be a great deal.

This ensures the landlord tries to rent the place out quickly again rather than sit back.

Remember, get the best possible deal now - the better the terms, the easier it is to pass on. Maybe the op should ask another agent to negotiate. Probably cost a grand, but it would be well worth it