Commercial property leases - navigating risks in the logistics sector

The logistics sector across Bedford, Milton Keynes, and Cambridge is moving at a rapid pace. For both landlords and tenants, the legal landscape of commercial property leases contains hidden risks that can directly impact the financial viability and operational efficiency of a business.

In this blog, we provide essential insights into the complexities of logistics leasing, drawing on the expertise of Michael Roche, Partner and Team Leader for Commercial Property at Woodfines. Whether you’re expanding your footprint near the M1 or securing space along the A1 corridor, understanding these factors is key to a successful tenancy.

Local Factors for Logistics Companies to Consider

In our region, location is dictated almost entirely by road connectivity. While Milton Keynes remains a primary hub due to the M1, areas like Biggleswade have become increasingly significant for those requiring A1 access.

When preparing for a move, it’s vital to consider how local infrastructure and the limited number of Grade A warehousing opportunities will affect your strategy. Demand for modern space is high and many businesses find themselves torn between either prioritising a new-build (which could come with a significant waiting time) or securing ready-built stock. Both options carry legal and timing risks that must be considered and managed from the outset.

Avoiding Difficulties with Negotiations

While many commercial terms are agreed upon via surveyors in the Heads of Terms, the legal mechanics of a commercial property lease are where the protection of your interests truly begins.

The New-Build Risk

If your move is time-critical, a new-build project can present significant challenges. Agreements for Lease involving construction are susceptible to external delays, such as ground conditions or supply chain issues. If your current lease is ending, a delay in your new premises can leave your logistics operations in limbo.

Title and Restrictions

Existing units are not without their challenges too. It’s essential to conduct thorough due diligence on freehold titles early. Restrictive covenants may prohibit warehousing use on a site that has been used for that purpose previously. While these issues can usually be resolved via indemnity insurance, identifying them early prevents costly delays during the final stages of the transaction.

Managing Logistics Sector Disputes

Disputes in the logistics sector often stem from the high-intensity use of the property. To protect yourself, you should pay close attention to:

• Dilapidations: Logistics tenants often install heavy racking and complex sprinkler systems. The cost of removing these and repairing floor damage at the end of a lease can be significant.
• Service Charges: On shared estates, the maintenance of private roads – often damaged by heavy goods traffic – is a frequent point of contention.
• Subletting: Tenants with excess space often sublet without formal consent. This can lead to a breach of lease terms if not handled correctly through the proper legal channels.

ESG and Compliance

With Minimum Energy Efficiency Standards (MEES) becoming stricter, ‘green leasing’ is no longer optional. What do I need to know?

• For Tenants: It’s important to ensure the lease clarifies who is responsible for the costs if energy regulations change during your term. An older unit may require significant capital expenditure to remain compliant.
• For Landlords: Non-compliance can lead to hefty fines or the inability to let the property. Integrating reporting obligations into the lease is now a standard way to manage energy data and asset value.

Further Advice for Tenants and Landlords

Getting the right legal advice at the start of the process ensures that your lease supports your overall business objectives. Woodfines recommends the following steps for a secure transaction:

1. Schedule of Condition: In UK law, an obligation to “keep” a property in repair can often mean “putting” it into repair. Tenants should try and agree  a Schedule of Condition to limit their liability to the state the building was in at the start of the lease.
2. Clarify Dilapidations Early: Be transparent about your fit-out requirements, specifically racking and floor loading to avoid surprises when you exit.
3. Conduct Estate Due Diligence: Look beyond the warehouse walls. Assess the condition of the estate roads and the management of the service charge.
4. Verify Solvency: Landlords should meticulously vet tenant solvency, particularly when high-value assets are involved and personal guarantees are absent.

Ready to secure your next commercial premises?

Our commercial property solicitors are experts in the regional logistics market and are ready to help you navigate your next lease. Visit our Commercial Property page and contact our team today to ensure your interests are fully protected.