Keep it legal: Negotiating leases

Most charities will at some point need to occupy offices or other premises owned by another party.

Taking on a lease is a common way to do this. The cost of premises, including rent, rates, repairs and insurance, may represent a large part of a charity's overheads. It is vital to identify the right premises and negotiate the best possible lease terms. 

Negotiating a lease involves considering a large number of related issues and, in all likelihood, seeking advice from more than one professional. As well as a solicitor, charities will generally need to see a surveyor. In some cases, specialist VAT advice may also be required.

A key stage is the agreement of 'heads of terms', setting out the general shape of the deal. The landlord's agent may discuss these with the charity directly or simply set out terms for it to accept. The charity may be encouraged to agree these terms immediately to demonstrate good faith and avoid losing the property. However, agreeing to incomplete, poorly understood or otherwise inappropriate heads of terms will cost time and money, and is generally more expensive in the long run. Charities should therefore make sure they understand all the terms that are set out and seek advice from appropriately qualified property professionals to ensure the terms are right for their needs.

Other problems can arise from repair and service charges. Repair clauses may require charities to ensure properties are in a better condition than when they moved in. When a charity is leasing only part of a building, service charges will often require it to meet part of the cost of potentially expensive works that might become necessary for the main fabric of the building. The repair obligation can be limited so that a charity is obliged to maintain the building only in the state of repair it was in at the start of the lease. Alternatively, the service charge may be capped at an agreed annual maximum so that the organisation can be certain of the extent of its commitment.

Another thing to look out for is the length of the lease. Many charities are dependent on short-term revenue funding and will face financial difficulties if they can't end the lease immediately if funding is not renewed. The lease term should dovetail with existing funding arrangements.

• Shivaji Shiva, partner in the charity team at Russell-Cooke solicitors 

 

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