Property Help for business owners, Part 1
10 essential points to consider before committing to a commercial lease:
1. Essential Preparation: You should consider the contents of the government’s voluntary code for commercial leases. This encourages more equitable lease construction and landlord/tenant obligations.
2. Legal Overview: In order to avoid onerous terms, appoint a solicitor to review all the legal documents. Agree a fee with them before formally engaging their services.
3. VAT: Be sure of your ability to recover VAT. Lease rents are quoted exclusive of VAT, with a separate comment regarding whether the building is elected for VAT. This can prove a costly oversight if neglected.
4. Flexibility and Break Options: Flexibility comes at a cost. The more flexibility a tenant requires, the higher the annual rent is likely to be, and lease incentives may also be reduced. Break options will only be valid when no other breaches or disputes are present. Make the serving of a break notice as simple as possible and seek to limit attached conditions.
5. Deposits: If you have a limited trading history, or none at all, the landlord will insist on a meaningful deposit being lodged. It is not unusual to be asked to deposit the equivalent of six months’ rent, which is to be held for the duration of the lease. Where possible, try to incorporate an early release clause.
6. Understand the Service Charge Recovery: It is essential to understand the service charge budget, recent service charge reconciliations, apportionment and the principal headings of recovery. Landlords may try to avoid using specific, named headings, to allow future cost recovery. Think about capping or fixing service charge contributions.
7. Alterations: Applications for alterations are often considered as a specific application. Allow time for alterations to be reviewed, so consent from the landlord can be given.
8. Early Access: Alterations will often be required to business premises before occupation (trading) can begin. This will require a specific license or an Agreement to Lease. Discuss this at an early stage of negotiations.
9. Non-Domestic Rates: New rating assessments will come into force on April 1 2010. They are likely to rise, so budget for this increase. Consider asking the landlord to appeal against the new level on your behalf, as you will be charged a fee if you appoint a professional to appeal for you. An appeal may be as much in his interest as it is in yours.
10. Dilapidations: Consider whether the changes you want to make improve the value of the space. If they do, think about asking for the “Yielding up” provisions to be relaxed, as this will save you money in the long term.
These important factors to consider have been brought to you courtesy of TAP (the Tenant Assistance Program). TAP provides impartial assistance in all areas of commercial property.
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