Most businesses need premises to operate from, and getting the right premises, at the best terms, is one of the most important commercial decisions business owners can make.
It is also a minefield.
The key decisions a buyer will have to take in agreeing to lease commercial property, after deciding whether the premises are in the right location for the business, and are fit for the purposes of the business, include:-
- The “Term” – basically how long the Lease is to last.
- A “Break Clause “– which enables a tenant to get out of the Lease early, but must be included in the original Lease to be available and be adhered to strictly to be effective.
- A Rent Review – in leases for longer than three years it is usual for a Landlord to expect to include provision in the lease for the rent to go up – either by a fixed amount agreed in advance, or arrived at by a formula set out in the lease. The terms of these clauses can sometimes be onerous and need careful consideration.
- The “Covenants”- these are the enforceable obligations on a tenant in a lease, and again they can be very onerous in unexpected ways. The most important ones is:-
- For the repair of the premises – many Landlords will look to transfer responsibility for keeping their premises in a good state of repair onto tenants, and this could mean a tenant taking on more than they bargained for if the property is in a poor state when they take the lease on; tenants will naturally want to limit their liabilities to avoid a bill for repair running to thousands of pounds when the lease ends;
- The “Guarantor” – especially when the tenant is a limited company a Landlord will be looking to get a back up to pay the rent and assume the obligations of the lease if the company fails – and that most likely would be the owner of the business who will be asked to put up their personal assets.
Prospective tenants should investigate the background of the premises before signing up to a lease (though many don’t). Does the landlord own the premises? On what tenure? If a landlord has a bank loan charged on the property, do they have the bank’s consent to let the premises? Is there adequate buildings insurance in place to cover the business? Do the premises need any rights of access over adjoining land, and can the landlord confer those rights on a tenant?
There are also hidden costs to consider – leases over seven years have to be registered at the Land Registry; and stamp duty is payable on new leases where the aggregate rent is over £150,000 and also has to be “topped up” on rent reviews. Even if none is payable, the Inland Revenue have to be notified on many lower value leases.
At Albinson Napier we have extensive experience of giving advice to prospective tenants , and can offer an all round service informed not only by technical knowledge, but also by commercial awareness and understanding.
Our service is affordable – the average costs of a commercial lease will be around £1000 plus VAT, but we will always give a quote tailored to individual needs before agreeing to act. That will include Disbursements like land registry fees and stamp duty as required.
If you want an informal discussion as to any tenancy prospect, please call or e-mail our Commercial team, Tim Napier, Richard Napier or Graham Wright for a no-commitment chat.