Business Premises Lease/Tenancy

tushingham

Hello all,

Id appreciate some newbie advice about buiness lease agreements. Im exploring the idea of starting up a retail outlet and have found a venue and been given an outline lease to conisider.
I wanted to know whether business premises leases would normally have a notice period under which you can get out of the agreement (like a residential 3 or 6 month notice period). This lease doesnt have such a thing so assume I'd be tied in for the full 15 years with no quick way out...i understand why that might bethe case but thought i'd check.

Also there are 5 yearly rent reviews (upwards only) and I wonder how those usually work. Is it normally done by an independent valuer or the landlord? What might happen if there is a disagreement over the value (should there be some form of settling/arbitration clause?).

Are there any extras that it might be worth asking for as its a new start up. Things like contributions to shop fit etc? ANy others worth asking about? Only asking because I have no idea!

The agreement states that the landlpord pays for insurance and is reimbursed by tenant. Is this normal? Theres no incentive for landlord to shop aorund for a 'good deal'. Is it worth having a 3 quote clause or somthing like that?

I appreciate that all agreements are different and you could include almost anything in a lease/tenancy agreement but I have zero experience in this field so thought i'd get some advice to guide me in discussions.

Thanks in advance
t

ps- landlord is very open to dicussion.

chalkie99

tushingham wrote: »

ps- landlord is very open to dicussion.

I'll bet he is! There is so much vacant property at the moment that you are in the driving seat here so you need to haggle very hard. Start with something outrageous and compromise only if you have to. Be prepared to keep a poker face and walk away after your first offer.

notice period

Any lease of this length should have "break clauses" - the opportunity for you to give, say, 3 months notice after each 3 year period. This can limit your liability if things go wrong but remember that if things go well you might want to move out anyway, to larger premises. 15 years is a long time to sign up to in the current climate.

It might be worth thinking about formation of a limited company to protect yourself here, unless the landlord insists on personal guarantees.

rent reviews

These can be tricky and I have fallen foul of this myself some years ago.

Basically, they can try and increase the rent by whatever they feel they can get. So, if a few big names move in locally or the council spruce up the street they may claim they can get more rent from a new tenant, even though your business may not be doing any better.

any extras that it might be worth asking for

Definitely a rent free period to start - 6 months at least.

They probably want you to pay both sides legal costs but make them pay their own.

landlpord pays for insurance

Not all that unusual. They probably have a bulk policy for lots of premises. Wouldn't personally argue about that myself.

Other thoughts:

Absolutely get your own solicitor and proper survey so that you do not incur expensive repairs to the property that may arise from existing faults in the structure. Do not be tempted to skimp on that.

Be absolutely sure you consider all other expenses such as service charges, commercial waste collection (not covered by business rates), business rates themselves, water rates, other insurances such as stock and liability, lighting, heating, phones, internet, ........

Good Luck!

tushingham

Thanks for the useful advice. Its new build site with one big retailer on board so i figure there'll be a bit of too-ing and fro-ing. They are obviously trying hard to sell the positives and im selling the fact that im getting invloived early
Thanks for advice re rates and surveys.

t

Savvy_Sue

chalkie99 wrote: »

Absolutely get your own solicitor and proper survey so that you do not incur expensive repairs to the property that may arise from existing faults in the structure. Do not be tempted to skimp on that.

And even in a new build, make sure that you have a full record of the state of the place, with photos, because if you have to return the premises in the state you received them in, you don't want the landlord insisting that you replace the flooring if you moved in with bare concrete.

I believe it's also usual that you insure your own tenant's improvements, so check that out too! This is way outside my area of expertise, but I remember a thread from a loooong time ago where something like an external shutter had been damaged, and the tenant thought it would be covered by the landlord's insurance. But it wasn't, because it had been installed by a previous tenant.

Adding to chalkie's 'other thoughts': who's putting in and responsible for the fire extinguishers, smoke detectors, fire alarms, and maintenance of same?

Eliza_2

Yes, just to reiterate all that has been said. We did everything wrong and regret it. Our landlord wouldn't consider a rent free start, in fact, insisted we were lucky to only need to pay monthly as normally he asked for 3 months up front. He pays the insurance and presumably this is included in our rent.

I'm still confused about repairs, we appreciate we are responsible for internal stuff, decoration etc, but he told me he re-roofed the building 'out of the goodness of his heart' - surely that should be his responsibility anyway?

So hindsight is a wonderful thing and we'll sort ours out but please be absolutely sure about what you're getting and what you're expected to pay for. This is an industrial unit rather than a retail one, so things might be different for retail but check, double check and ask about everything!

We also paid their legal costs as we were advised this was the norm. Luckily we transferred the lease from the previous tenants so will have the chance to renegotiate, knowing what we know now, in a year or so's time.

Flat_Eric

I gather from your first post that you have a copy of the Lease. How many pages does the Lease run to ?


What term would you like ? and what is your proposed use ? Do you have a solicitor instructed ?

eta how much is the annual starting rent and when is the first rent review ?

Savvy_Sue

BTW, I think someone here (can't remember who but they seem to know what they are talking about) reckons that using an agent is well worth while, for several reasons. It doesn't get personal between you and the LL, the agent knows all the tricks the LL will try to pull and will counter them, the agent knows when to walk away and wait for the LL to make a better offer etc.

chalkie99

Eliza wrote: »

He pays the insurance and presumably this is included in our rent.

I'm still confused about repairs,

See, this is the scary thing about people taking on premises.

You just cannot afford to say "presumably" or "confused" and hope things will be all right.

Our Landlord "pays" the insurance but then, once a year, we get a separate invoice for it.

Many leases are set up as "full repairing and insuring" . In a nutshell this means that you are responsible for putting the roof right when it leaks, even if it may have been in a state of disrepair before you even rented it. You could, potentially, find yourself facing a bill for many thousands of pounds without a leg to stand on because you signed for it.

Landlords are in business to make money. They are not your friends.

Let me give you a little example. Many years ago I left my job in a big company to set up a shop. I had very little money and what I did have I naturally wanted to spend on stock. I found a very small shop of very old construction and owned by a little old lady. The rent was very low and I was keen to sign up and start trading.

The manager at my employers insisted I should have a solicitor to check it out and, being young and foolish, I was not about to waste stock money on that. He insisted I use the company solicitors who were a very posh and very expensive firm but, as a parting gift, the company paid the bill for me!

The solicitors then made me get a full structural survey done. When I got this back I could not believe it. It was basically an A4 sized book and listed every single fault in the building. The solicitors then re-drafted the lease to exclude me from any liability for repairs and renovations much to the annoyance of the little old lady landlord who later turned out to be a hard nosed old so and so.

It was a lesson I never forgot and taught me never to sign anything I had not negotiated and did not fully understand.

Hope it all turns out well for you!

tushingham

Flat_Eric wrote: »

I gather from your first post that you have a copy of the Lease. How many pages does the Lease run to ?


What term would you like ? and what is your proposed use ? Do you have a solicitor instructed ?

eta how much is the annual starting rent and when is the first rent review ?

Hi,

Thanks for the reply. Im very very early on in disucssions with the landlord/agent of this new site and have made no commitment. I thought I should investigate in detail before agreeing to anything.
I already have a firm of solicitors I have used in the past and they will be my port of call when I have decided whether this is potentially viable or not. I will also follow the excellent advice about surveyors and agents.

So far I have been emailed a draft outline agreement and asked to feedback my thoughts. Before I replied to them I thought I'd see what might be possible from the experience of others here and then just let them know the areas I would want to negotiate (via my solicitor). I believe I will be one of the very first tenants of the complex so think the developers are at an early stage too. The development wont be complete til approx June 2012 so i've seen a potential opportunity and am doing my research early-ish.

The document is 3 pages long and the rent is £17k per year for 700sq ft with an offer of £31k if i take 2 units at 1400 sq ft (but i dont need that much space so going to be sticking with 1 if i do pursue this).

Im looking at the premises as a fast food takeaway. The document mentions 15 year lease and 5 yrly upward only rent reviews. Not much more detail on this section but have been told to give them my opinion on the rough principle and more detail re-reviews will be added. Im happy with 15 yrs but there is no 'get out clause' and i think i'd like to add the option for a notice period every 5 yrs or so. Wanted to know if that would be reasonable before entering further discussion with them or engaging my solicitor.

Thanks again for all help so far and any new advice you can alll give.

t

ps- in terms of the business idea itself, im happy to also receive any top tips from those with experience in the field but not too much in the way of nay-sayers please!!

tushingham

Savvy_Sue wrote: »

BTW, I think someone here (can't remember who but they seem to know what they are talking about) reckons that using an agent is well worth while, for several reasons. It doesn't get personal between you and the LL, the agent knows all the tricks the LL will try to pull and will counter them, the agent knows when to walk away and wait for the LL to make a better offer etc.

thanks sue,

this is a great tip and if i decide to pursue this venture then i'll certainly be following your advice.

t

tushingham

Eliza wrote: »

Yes, just to reiterate all that has been said. We did everything wrong and regret it. Our landlord wouldn't consider a rent free start, in fact, insisted we were lucky to only need to pay monthly as normally he asked for 3 months up front. He pays the insurance and presumably this is included in our rent.

I'm still confused about repairs, we appreciate we are responsible for internal stuff, decoration etc, but he told me he

reroofed

the building 'out of the goodness of his heart' - surely that should be his responsibility anyway?

So hindsight is a wonderful thing and we'll sort ours out but please be absolutely sure about what you're getting and what you're expected to pay for. This is an industrial unit rather than a retail one, so things might be different for retail but check, double check and ask about everything!

We also paid their legal costs as we were advised this was the norm. Luckily we transferred the lease from the previous tenants so will have the chance to renegotiate, knowing what we know now, in a year or

so's

time.

thanks for your input. very helpful for me to learn from your experience. appreciate it.

t