It is clear following the well-publicised closures of stores recently by amongst others well known retailers Toys “R” Us Maplin and Homebase that times are still tough for retailers and businesses in general.
If you have a retail or other business and are looking to take a lease of premises then here are a few key matters that you might wish to consider before taking the plunge and the financial burden that goes with it:
- In what name should I take the lease? – Consider taking a lease through a company rather than as an individual. That way you limit your liability to the assets of the company and take no personal liability. Avoid giving personal guarantees if you can and if the landlord wants additional security then offer a rent deposit.
- What length of term should I take?- Try to keep the lease term to no more than 5 years or 10 years with a right to break the lease at 5 years. That way you limit your long term exposure should your business struggle and the shorter the lease the less Stamp Duty Land Tax you will pay.
- Do I need to have a survey carried out? – This is vital as invariably you will be taking a lease which obliges you to repair either the interior and exterior or just the interior but paying the Landlord for external repairs. You would not take on your own home without a survey. Treat your business premises in the same way and you could save yourself a potentially severe financial burden. If possible try to link your repairing liability to a photographic schedule indicating the premises current state of repair.
- What about the timing for rent payments? – Most landlords will insist on quarterly payments in advance which can lead to cash flow issues. Try for monthly payments in advance instead.
- Rent free periods – Some landlords will offer up to 6 months’ rent free at the lease start which will help you with your fit –out and early trading.
- What if I want to transfer the lease to another tenant? – It would be usual for you to have a right to assign (transfer) the whole of the premises. Try to also have included a right to underlet the premises. That way you retain the right to come back to the premises at a later date should you wish to do so if trading conditions improve. You should be aware that even if you transfer the lease the landlord can ask you to guarantee the liabilities of the incoming tenant hence why a shorter lease could be the better option.
- Will I get a new lease at the end of the term?- If your business is likely to build up goodwill then try for a lease that is protected under the Landlord and Tenant Act 1954 so that the Landlord is obliged (save in certain circumstances) to give you a new lease at the end of the term.
- What if I run into trading difficulties? – Make sure you communicate with your Landlord. Landlords are more likely to agree a rental concession arrangement if you approach them as soon as you have cash flow problems rather than you stop paying the rent and ignore them.
Head of Commercial Real Estate