Renting Commercial Property


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Download PDF 		Are you considering renting a commercial property? The aim of the Bright Property website is for the landlord and tenant to deal directly with each other, so we have produced this Renting Commercial Property Guide to help you.

STEP 1 – WHAT CAN YOU AFFORD?

Before you start looking for property it is a good idea to calculate how much you can afford to spend and establish what the costs of renting are:
  • Rent
    Generally commercial property’s rent is paid quarterly in advance. It may be All Inclusive – rent, utility and service charge costs.
  • VAT
    This may be applicable if the Landlord is VAT registered. This is reclaimable if you are VAT registered.
  • Business Rates
    It is usual for the Tenant to be responsible for this. The Landlord should be able to provide you with details of this or alternatively, contact your Local Council.
  • Utility bills
    Gas, electricity, water. The cost of theses items will be dependant on your use.
  • Service Charges
    If the property is within a building or on a business park there may be a shared responsibility for the maintenance, cleaning, security of the car park and building. Generally you will be required to pay this separately to the rent.
  • Insurance
    It is usual for the Landlord to insure the building and pass the cost of the building insurance on to the Tenant. The contents insurance is the responsibility of the Tenant.
  • Landlord’s legal costs
    In some case you may have to pay these.
  • Stamp Duty and Registration Fees
    This is payable by the Tenant depending in the length or lease and value. The stamp duty calculator will give you an idea of the amount you should have to pay: http://ldcalculator.inlandrevenue.gov.uk/.
STEP 2 - CHOOSING YOUR PROPERTY

It is worth drawing up a list of requirements that you want from the property. Bear in mind finding the perfect property is not always possible and compromises may need to be made.

Things that you may need to consider:-
  • “Location, Location, Location!” – the key phrase in property searching!
  • Type of accommodation:
    • Office –open plan/cellular
    • Industrial – eaves height/ancillary office.
    • Retail – one level/footfall
  • Local Area
  • Infrastructure – roads, rail and public transport links, broadband
  • Size
Where to look

  • Register with Bright Property under the Wanted Ad.
  • Search Bright Property properties available.
Viewings tips:-
  • Where possible try and arrange viewings as soon as the property comes on the market.
  • Take the property details along with you and a contact number in case you are delayed.
  • Make notes – you may not remember all aspects of the property if you are viewing several. Taking photographs can be a good record of the property, but ask the owners permission beforehand.
  • View the property a number of times if you need to – at different times of the day, weekdays, weekends, rush hour etc. so that you get a feel for it.
  • Look round the area.
  • If you are going on your own, make sure somebody knows where you are.
  • Ask what is included with the property e.g. fixtures and fittings, a breakdown of the utility costs and Business Rates.
You may wish to ask how many people have viewed the property, how long has it been on the market, how long the Landlord wants to rent it for, and why is he renting it – it may be useful when it comes to negotiating the rent.

STEP 3 – RENTING A PROPERTY – THE TERMS

The following provides an indication of what maybe included in a Tenancy Agreement. However, it maybe worth obtaining a copy of the Code of Practice for Tenants and Landlords in England and Wales to follow when negotiating commercial leases: http://www.bpf.propertymall.com/whoweare/commercialleases

Lease or Licence?
A lease creates “an interest in land” a license does not.

Key Points of a Licence:

  • The area of occupation may not be precisely defined.
  • The occupier shares some or all of the occupation, probably with the Landlord;
  • Some services are included in the licence fee – Business Rates, electricity, furniture, fixtures and fittings are included
  • The owner can terminate the occupation on little or no notice;
Key Points of a Lease:
  • There is a written agreement setting out the terms of occupation
  • The area of occupation is precisely defined;
  • The occupier enjoys exclusive occupation - it is not shared (except with other Tenants)
  • There are no services included in the money paid for occupation - but they might be stated as a separate item;
  • The money paid is for rent only.
  • The property owner cannot terminate the occupation on very short notice
  • Term
    The length of lease offered.
  • Rent
    • Will it be all Inclusive?
    • How often will it be paid – weekly, monthly, quarterly?
    • How you wish the rent to be paid – standing order, direct debit etc.
    • In advance or in arrears?
    • Is VAT payable?
  • Landlord and Tenant Act 1954
    Will the lease be within the protection of the Act if so this protects the Tenants rights when renewing your lease unless there has been a breach of Tenancy.
  • Services
    What services do the premises benefit from – gas, electricity etc
  • Shared Facilities
    What shared facilities does the premises benefit from: e.g. kitchen, WC, communal entrance?
  • Use
    What planning use does the premise have?
  • Alterations
    Are alterations permitted? What is the procedure in obtaining permission from the Landlord i.e. in writing, complying with Building Regulations?
  • Break Clause
    This is an option for either/both the Landlord and Tenant to terminate the lease early. The lease will specify when the break clause can be exercised, the notice period to be given and whether it is conditional i.e. the break clause cannot be exercised if the Tenant is in breach of the lease.
  • Sub-letting
    Is sublet of the premises permitted. Whole or Part? On what terms (usually the same terms as the lease but for a shorter period).
  • Assignment
    Transferring the obligation of the lease to another business and bringing the original Tenants occupation of the premises to an end. Assignment does not always bring the obligations of the lease to an end as in some circumstances the Tenant may have to act as guarantor for the Assignee. Assignment can be complex so ensure the lease is clear to prevent unnecessary negotiations if assignment does takes place.
  • Service Charges
    The actual cost for the maintenance of the communal or shared areas, i.e. entrance, WCs, roof. You will need to establish how the service charge is calculated, what proposition you are responsible for, whether there is any planned maintenance, and if there is a sinking fund.
  • Repairs
    It is usual for the Tenant to have some responsibility for repairs it may be:
    • Full Repairing and Insuring – you are liable for all maintenance, repairs, and insurance of the premises.
    • Internal RepairingThe Tenant is responsible for the interior of the premises in terms of maintenance and the Landlord is responsible for the exterior. If the premises are shared then the service charge may cover the maintenance of the exterior of the premises.
  • Rent Review
    How the new rent will be reviewed:
    • When are the rent review dates?
    • Can the rent go down, as well as up?
    • Whether it is based on market rent or linked to the Retail Price Index.
    • The date of the rent review.
    • Is time is of the essence.
    • What dispute resolution method will be used it agreement cannot be reached arbitrator or independent expert.
  • Rent Deposit
    In some circumstance a rent deposit may be required, for example a start up business. It will need to be agreed when it will be repaid. The circumstances it will not be repaid. Whether interest will be received on it.
STEP 4 – NEGOTIATION

The Landlord wills set out the terms that he is offering in the details. There may be some scope for negotiation or it may be on a take-it-or-leave-it basis. It will be very much dependant on the circumstances of the Landlord.

Tips to help with negotiation:-

  • How many people have viewed the property?
  • How long has it been on the market?
  • How long does the Landlord want to rent it?
  • Prove your business’ ability to pay the rent over the period of the tenancy
  • In some circumstances Landlords offer incentives such as a rent-free period, before you even start negotiating.
  • Consider having a survey done and insisting on any alterations, repairs and redecoration being completed (and paid for by the Landlord) before you sign the tenancy or the Landlord may agree to a rent free period or the service charge capped if there is some work to be carried out.
  • Check that the heating and plumbing for example, function correctly.
  • Ensure that you can carry out internal non-structural alterations, such as putting up shelves and partitions.
  • Discuss any immediate alterations and get the Landlord’s approval in writing.
  • Does this person have the legal right to enter into an agreement with you?
  • Are the premises unoccupied? Is anything preventing you moving in?
  • If there are items left by a previous Tenant, who will remove them, and when?
  • Are the measurements of the premises accurate (as listed in the selling documents)?
References
In most cases a Landlord will take up a prospective Tenant’s reference. Therefore be prepared to provide the following:-
  • Bank Details - bank name, address, your account number, sort code, account name
  • Previous Landlords – Details of where you have lived for the last 3 years.
  • Accountant and/or Solicitor reference to verify who you are
  • Last 3 years accounts.
  • Checks with Credit reference agency may also be carried out.
If you are not able to provide sufficient referees or fail you the reference checks you be asked to provide a guarantor. If your business fails, you will be liable for the rent and for other payments due under the tenancy for the rest of the tenancy period.

STEP 5 - LEGAL WORK AND SURVEYS

Legal Work
Once the offer is accepted and negotiation concluded you are then need to advise or appoint your solicitor if you are using one. You can find details of solicitors or conveyancers in your area by going to the Law Society Website.
http://www.lawsociety.org.uk/choosingandusing/findasolicitor.law.

Obtain quotations in writing detailing the work they will undertake and the costs involved.

Surveys:
In some circumstance it is advisable to have survey undertaken so that you are fully aware of the following prior to letting:-
  • The actual size of the premises.
  • Whether the building complies with building regulations.
  • The estimated cost of any current and future building repairs.
  • The condition of services, such as lifts.
  • Whether any dangerous materials were used in the construction, such as asbestos or high alumina cement, which may need to be removed or replaced.
  • Any unusual problems that might otherwise be overlooked.
  • Ask what type of survey the surveyor recommends, and why. For example, a specialist mechanical survey of lifts and air conditioning equipment.
  • Make sure the survey covers all your areas of concern (the surveyor cannot be not held responsible for things he or she does not agree to check).
  • Check the cost and timing of any work that needs to be carried out.
  • Check that the surveyor has professional indemnity insurance.
  • Get these points agreed in writing.
You can find details of surveyors at http://www.ricsfirms.com/vw/search/location.aspx

Legal Process
  1. Lease Agreement
    The lease will be drawn up by the Landlord’s solicitor/conveyancer (unless the Landlord is doing it himself) which sets out the main terms of the proposed agreement, including your names agreed terms and rent price. This will then be sent to the Tenant and/or their solicitor.
  2. Searches
    At this stage the necessary searches will be carried out. If you need assistance moving, now is the time to get quotes from removal companies or enquire about hiring transport.
  3. Exchange of contracts
    Once the contract is agreed and all searches and surveys have been undertaken, the contracts can be exchanged and a date agreed for exchange. At this point neither party can withdraw easily with out the possibility of incurring financial penalties.
  4. Completion
    At completion the Lease will be executed and any monies due paid. Arrangements then have to be made for collection of the keys and then you are ready to move!
STEP 6 – END OF THE TENANCY

Depending on the terms of your tenancy the occupation of the premises may cease based on one of the following:-
  • Assignments
  • Break Clause
  • Expiry of the lease
Depending on the reason you may be responsible for reinstating the premises to its ‘original condition’ this may mean removing all the alterations that have been carried out and making any good damage caused.

If you have had a schedule of condition survey (written or photographic or both) at the commencement of the tenancy this may eliminate any unnecessary negotiation. Your lease should set out what you are required to do and it is worthwhile ensure you have a sufficient funds to undertake any work that maybe required.

If the lease is protected by the Landlord and Tenant Act 1954 there are mechanisms and procedures to be followed regarding renewal.






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