New business lease- why must T pay a deposit to L?

[muppetsouthgate]

Is it normal for a commercial landlord to require a deposit? I am considering a property at the moment and they require 3 month's rent as a deposit which they will hold for the entire period of the lease - bit steep I thought!

I am dealing with an absolutely useless commercial lettings agent who just wants me to agree to absolutely everything the landlord has asked for and will not even put forward any other options (I suggested a lower rent in the first year then hiking it up in the second year and third year so that the landlord gets all his money but I am not having to find too much extra money out of my starting capital.)

What should I do?

Thanks

[MrShed]

I must admit to not having a clue, but in residential properties 3 months deposit would be seen as a premium....dont know if the same applies here though?

[lou]

Hi, we are in the process of starting up a business and looking for premises, we have been advised to negotiate as much as possible on the rent - for instance they may want a deposit, and even if they don't, ask to delay paying the rent for 3 months until the business has opened (we are anticipating a 3 month fit out of the premises) so we don't have double that amount to pay at the beginning, a also, as you have requested - to ask for a reduced rent in the first year and increase it over the next years so the landlord is getting the same amount but just a bit later. I must admit though we haven't found the right premises yet so have not had to try it yet but we will take our business advisor's advice and negotiate as much as possible.

If you think they are not contacting the landlord I would be tempted to visit the agents at their office to negotiate and ask them to contact the landlord while you are there.

Hope this helps. Let us know how you get on.

Lou

[Paul_f]

First of all you should at the very least consider approaching a Chartered Surveyor or a solicitor who specialises in commercial leases for advice, and you should not sign any lease that hasn't been scupulously read by such a person first. I do however have some reasonable experience in this field and you might like to consider the following:

It is quite normal for the landlord or agent to request a quarter's rent as a deposit.
Try and negotiate a short-term lease of three years or less, as you haven't said how long the proposed lease is. Don't commit yourself to a long lease as there are Stamp Duty Land Tax issues which you might have to pay if it is.
Wording in commercial leases is not subject to unfair terms so can be enforced against you even is it appears draconian.
You need to know if it's going to be within the jurisdiction of the Landlord & Tenant Act 1954 or not.
If your business is not yet established and you don't know whether or not it's going to be successful try and get a break clause after year one when you should know your state of affairs.
If the agent or landlord appears inflexible then it's better to walk-away. If you tell them you are no longer interested and they come back to you, it shows they are having difficulty letting. If similar property in the vicinity is being readily let then you won't have as much latitude and you will ultimately have to accept or reject the terms offered.

[Tax Accountant]

It all depends on who is more desparate, the landlord to secure a tenant ot the tenant to secure the property.

As for the deposit, it depends on how strong your financial position is. At the least you should ask for the deposit to be placed in an interest-bearing account with your solicitor and be repaid in full with interest after say 3 years if you have not defaulted on rent payments in the meantime and your financial position could be proved.

Ramnik