The cost of having premises is a major part of the cost of running a business. Few businesses have the capital to purchase the freehold of premises and entering into a lease or tenancy agreement is the most common way to proceed. A lease usually sets out:
- the space you are occupying – by describing it (see a plan if possible)
- the rent and other payments eg service charge
- other conditions for eg the length of the lease and arrangements to review the rent
- your rights
- your obligations and liabilities
- your landlord’s rights and
- your landlord’s obligations and liabilities
You should particularly look out for restrictive terms and conditions. You do not want to wish you had a ‘break’ clause or the right to sub-let when profits are falling. It is recommended that you seek expert advice when negotiating a lease. As well as a solicitor, you should be prepared to use a surveyor or valuer so that you gain specialist advice on comparable rates and terms for the type of premises in question; to report on the possible liabilities for repairs and to advise on planning aspects. Some guidelines:
- Check that you know the ‘going’ rent for the location and type of premises.
- What is the level of business rates that will be levied?
- Does the length of the lease fit in with your business plans?
- Is the lease flexible, for instance, will it allow you to surrender the lease early by means of a ‘break’ clause and is there adequate provision for assignment, sub-letting etc?
- If there is a full repairing covenant, a full survey is recommended.
- Is there a service charge? Check what is included in the service charge and that you are not going to have to pay for costs which the landlord should be paying.
- Do you need planning permission?
- Will your bank, accountant and solicitor provide good references?
- Have you checked the rent review clause carefully? Might the landlord accept an alternative to its proposed option for rent review priced on a risk-adjusted basis?
- What are your insurance obligations? The landlord may expect you to insure the premises yourself or to pay for the insurance if the landlord takes it out.
- If taking on an assigned lease, check very carefully your liability for repairs. The landlord must also give consent to the assignment and will want to take up references.
- Are you VAT registered? Leases generally allow the landlord to charge VAT at any time. If you are not VAT registered, try to get your landlord to agree not to impose VAT during your term.
- Is your lease a new lease (i.e. one granted after 1 January 1996)? If not, it may mean that you remain liable even after the lease has been sold on several times. Therefore check that your buyer is financially sound.
The above guidelines are not intended to be exhaustive of everything which you need to take into account when taking on a new lease and it is always recommended that expert legal advice is sought.
Judith Long runs JUDITH M LONG solicitors, and is a consultant to business contract supply service www.ContractStore.com