Depending on the kind of business you run or plan starting, it could be impossible to do it without premises.
Retail is the most likely example of this; you can’t open a shop at home (well apart from an internet shop, anyway). Or if you run a service business and are taking on employees, you may be more comfortable hiring offices, rather than have your team tramp through your house every day.
Taking on a commercial lease is a much bigger commitment than renting a property to live in. Domestic property is relatively easy when you compare the two, and the emphasis of the law protects you the tenant.
Not so as a commercial renter. There are lots of things to keep an eye out for; or you could find yourself being stung for several years just because you didn’t spot something in a lease agreement.
You must get an experienced commercial property solicitor to look over any lease and advise you before signing anything. It may even be worth asking them to negotiate the lease on your behalf. This will not be cheap, but in the long-term is likely to save you a great deal of stress, heartache and even money.
Here are a number of common pitfalls to be aware of before signing; but do remember this article does not replace professional advice and you should not make decisions or take actions based on it.
Length of lease
Be wary about signing up for more than three to five years. That’s a very long time and business is changing fast. Whatever you do, never ever sign a long-term lease of 10 or even 20 years on premises, no matter what rates are on offer. Big businesses with proven business models and multiple outlets can do this, but small new businesses can’t.
What can you use the premises for
Make sure any lease you sign actually allows you to use the premises for the purpose of your business. Sounds stupid, but it’s an important detail to ensure is in there. You may also look for some flexibility to be built in so that you can make changes to your business model down the line, without having to renegotiate your lease (for example you might start a restaurant and later add a take away section). One thing to be aware of is that no matter what your lease says, you must also have planning permission to run your type of business from that building. There are strict rules governing the kinds of businesses that can be run from different areas. Doesn’t matter what the lease says – if the local council won’t grant permission for a chip shop at your premises, it’s not going to happen.
Costs
Of course you will have to pay rent. And it is normal practice for the tenant to pay utility bills and rates. You may also be asked to pay a service charge for ongoing services provided by the landlord, including covering the costs of their buildings insurance. It is also worth checking to see if your business will have to pay VAT on the rent. Even if your business is VAT registered, VAT payments on rent will have a cash flow implication.
Repairs
If you break it, who fixes it? Some commercial leases come with full repair terms, where you are required to make any repairs needed to keep the premises in good condition while you are using them. Be very aware of this; unless the premises have been recently refurbished you may find your business becoming liable for making up the general disrepair of the premises a few years down the line, when it is hard to remember what damage was there and what was caused.
Experts say the Commercial Lease Code made recommendations that your obligation to repair should be limited according to the length of the lease, age of the premises and the state of repair of the premises at the start of the lease. Unfortunately, the recommendations of the code are not being followed by all commercial landlords. If your lease puts the responsibility for repairs in the hands of the landlord, reach written agreement with them about how to report faults and how long it will take for them to be fixed. No business wants to wait 10 days for a leaky customer toilet to be fixed.
Getting out early
Many leases contain something called a break clause, which gives you and the landlord the chance to end the lease early. This is normally a protective clause should your business not perform well and you need to close it down, especially a retail shop. For your own protection look to get a clause like this inserted, or there’s a chance you may find yourself personally responsible for the lease when your business has ceased trading.
Passing the lease on
And the other thing to look out for is the right to pass the lease onto someone else. Be aware that sometimes commercial landlords will insert a guarantee clause, stating that if the new tenant doesn’t pay the rent during the rest of the term of your lease, it is you who is responsible for it!
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