Renting commercial property usually represents a major part of the operating costs involved in running any business. If you include surveyor's and solicitor's fees, rent, business rates, insurance, service charges and/or repairs and maintenance these items can easily make up 20% to 30% of your first year's operating expenses.It's very important therefore that you get the right premises for your present and future needs and that you don't commit yourself to something you cannot afford if things go wrong, or if your new business does not take off as planned. Remember, something like 2/3rds of all new businesses fail within the first 3 years!Not many new businesses have the wherewithal to buy a freehold property, so taking on a lease is often the only option you have. If you are new to renting business premises you need to be aware that there are a lot of legal implications which may not be immediately obvious.
You should be aware of some important differences between renting residential accommodation and taking on a commercial lease if you are to avoid some serious potential pitfalls:
It is most important that you understand every aspect of a business lease and your obligations under it. Do your homework by reading up on the subject - see our bookssection - and ask a qualified surveyor or a solicitor with property experience to interpret the lease for you if you're not sure.Accepting terms that are very restrictive or onerous can saddle you with business premises which become a real liability if things go wrong or the economic climate changes. Remember you are committing yourself to paying rent for the length of the lease - if you have a 10-year lease and your business fails after 3 years, you still owe the landlord 7 years rent!Business leases are often of the "Full Repairing and Insuring" (FRI) variety, which means that you as tenant take on all repairing and maintenance obligations and building insurance costs.You need to make absolutely certain that the building is free from major defects before taking on the FRI lease. If the building already has defects when you take on the lease you could find yourself having to put these to rights, so you should have a qualified building surveyor / structural engineer, or at the very least a qualified builder report on the condition.Taking on a long lease when the future is uncertain can lead to problems. The length of leases has gradually diminished over recent years due to increasing uncertainties in the business environment.The traditional institutional lease of 25 years is becoming much more of a rarity, except in the finest of prime properties.15 years is now more common and 10, 9, 7, 5, 3 or even 1 year in the secondary property areas is not unheard of these days.
With a new venture it's important to consider negotiating a break clause, allowing yourself a safety net should things go wrong. This enables you the tenant to terminate the lease after a certain period, but still retain the right to carry on if they so wish.Remember though, for a break clause to be operable you must have substantially complied with ALL your obligations under the lease - that means paying your rent and service charges on time, and maintaining the premises etc.Remember that break clauses often have conditions attached which are very difficult to meet, so you need to ensure during the negotiation phase that the break clause has as few such conditions as possible
Generally speaking the longer the term you are willing to commit yourself to, and the more onerous your lease terms, within reason, the lower should be the rent you pay, and of course, vice versa.You need to negotiate the best deal you can on rent. It's usual for a lease to contain provisions for rent reviews a certain periods, for example every 3 or 5 years. Depending upon the market and the area you are in, your rent can increase considerably over time.
As a commercial tenant you have statutory protection at the end of your term. This means that under the provisions of the Landlord & Tenant Act 1954 the landlord cannot automatically evict you at the end of your tenancy.However, some landlords will want to exclude these provisions in your tenancy. He can do this if you agree to it at the start, by allowing the lease to be "outside the Act". Be aware of what you are agreeing to here.