Cities and regions

Taking on new business premises

Finding suitable premises

Where can I get information about suitable premises?

Commercial agents are listed in Yellow Pages. Local authorities may have details. Local newspapers may carry adverts.

Some useful links:

Advice

Where can I find guidance/who can advise me on property issues?

It would be wise to seek professional advice. A Chartered Surveyor will be able to advise you on the best sort of deal to suit your business needs. A Solicitor will be able to advise you on legal points arising from the lease. The Royal Institution of Chartered Surveyors (Tel: 020 7222 7000) and The Law Society (Tel: 020 7242 1222) can provide further information. You can download a copy of The Code for Leasing Business Premises from www.leasingbusinesspremises.co.uk [External link].

Where can I get advice on leasing terms?

See FAQ immediately above. A local Chartered Surveyor will be able to advise you on what terms are available in the local market.

How much will the advice/guidance cost me?

There are no recommended fee scales so it will depend on the market in the area in question. Fees can be based on an hourly rate, a fixed sum or a percentage of the rent agreed. They can also be based on a percentage of the reduction of the rent proposed by the landlord. It's wise to discuss your requirements with your surveyor or lawyer and obtain his/her Terms and Conditions of Engagement in writing before you appoint him/her.

Negotiating a lease

What if I don't like the terms the landlord is offering me?

Ask whether the landlord would be prepared to lease on the terms you would prefer. If not, look for alternatives.

Commitments

What are my commitments likely to be?

This will depend on the terms of the lease you sign. The tenant will usually be required to pay for rent, rates and other running costs such as insurance and maintenance. Some leases may require a tenant to sign an Authorised Guarantee Agreement (AGA) when assigning the lease. This could make the tenant liable to pay costs if the assignee fails to do so.

Guarantees

Do I have to give the landlord a guarantee?

The landlord may ask for a guarantee, but this is a matter for negotiation. Landlords are more likely to ask for one if you do not have a track record or good credit rating. When a lease is assigned the lease may require the tenant to sign an Authorised Guarantee Agreement (AGA) which will make him/her liable for the default of his/her immediate assignee.

What are the risks and liabilities of a guarantor?

If you are asked to act as a guarantor, you should seek advice. The guarantor can be asked to pay the rent and service charges if the tenant doesn't pay. The guarantor can also be asked to undertake the tenant's repairing and other obligations if the tenant allows the property to fall into disrepair.

Rent

Are there any regulations on rent?

Not on the starting rent which is freely agreed between the landlord and the tenant. Arrangements for reviewing the rent should be written into the lease. In the event of renewal of the tenancy, it is for the parties to negotiate a new rent but a court can fix a rent, which reflects open market rents if the parties cannot agree.

What is an upward only rent review?

Where a lease contains provisions for rent reviews, an upward only review clause will mean that the rent will be increased at the review date if market values have gone up. But if values have fallen the rent will not be reduced below the present amount. A landlord might only agree to upward and downward rent reviews if you agree to a higher initial rent. The Code for Leasing Business Premises (which can be downloaded from: www.leasingbusinesspremises.co.uk [External link]) contains recommendations about rent reviews.

Do I have to pay VAT on rent?

You should ask at the outset. It will depend on whether the landlord has "made an election in respect of the building". If no election has been made, rent payments are exempt. However, the landlord can "make an election" at any time - even after the lease has been signed. If VAT is payable, it will vary with any changes in the VAT rate.

Other payments

Can the landlord impose additional charges on top of the rent?

This will depend on the terms of the lease you sign. You should get professional advice. The lease may require the tenant to pay a charge to the landlord to cover the cost of services like repairs, maintenance, cleaning, insurance and management. It may also require the tenant to pay the landlord's legal and surveyor's fees where his/her consent is needed to alter, sub-let or assign the property.

The landlord requires a deposit, who holds it, will I get it back, and who has the interest?

This is a matter for agreement between landlord and tenant. It is good practice for the landlord to hold the deposit in a separate designated bank account and for the deposit to be returned to you after an agreed period, together with the interest earned. The time period and the other terms and conditions for holding the deposit, e.g. the conditions upon which the landlord can draw upon deposit or part of it should be agreed in writing. It is important to take legal advice before paying a deposit. Without proper safeguards, problems could arise with recovery of the deposit on assignment or in the event of the landlord becoming insolvent.

Business rates

Who will be responsible for business rates?

Generally the occupier.

How can I check that I am not paying too much in business rates?

Business rates are based on the notional rental value of the property at a given date and are assessed by the District Valuer from your local Valuation Office. If you consider that your rates are too high, you would need to prove that the notional rental value was too high at the given date. You should seek specialist professional advice from a suitably qualified Rating Surveyor. The Royal Institution of Chartered Surveyors (RICS) runs a rating helpline where free initial advice is given by a specialist Rating Surveyor in your area. Please ring (020) 7222 7000 for more details. Beware of "rating cowboys" who may charge a hefty fee but not actually get your rates reduced at all!

Lease length

How long will the lease last for?

This is generally negotiable. Leases are now much shorter that they used to be, averaging about 7-8 years. Some leases are still considerably longer than this, and in these cases it is especially important to consider the arrangements for periodical rent reviews, often every five years. Leases now often contain break clauses, operable by one or both parties, and these can be useful if (for example) the tenant no longer needs the premises for his or her business. Some landlords may be prepared to offer short temporary lettings. If you would prefer a shorter lease, ask the landlord whether he/she would be prepared to agree to one.

Break clauses

Can I ask for a break clause?

A break clause is a clause in a lease giving either or both parties, in specified circumstances, the right to terminate a lease before its expiry date. Break clauses will often apply only on a specified date or dates. For example, it could be helpful to a tenant to have a break clause timed to enable him/her to terminate the lease in case the rent on review was increased to an unaffordable level. Seek advice if you're not clear about this, because getting a break clause included in a lease is a matter for negotiation between landlord and tenant.

Legal protection

Will my tenancy be protected in any way?

Any tenant occupying business premises normally enjoys security of tenure - the right to renew the lease when it has come to an end - unless he/she has agreed to contract out of the Landlord and Tenant Act 1954 Part 2. The landlord may oppose renewal of the tenancy on one of a number of specific grounds in the Act.

The landlord wants me to give up my Part 2 rights; what does this mean to me?

Excluding security of tenure or "contracting out" is when the tenant agrees at the outset to give up his/her statutory right to a new tenancy when his/her lease expires. For example, a landlord might ask for this if he/she were considering redevelopment in the future and wanted to be sure of getting the property back at the end of the lease. If your tenancy is 'contracted out' and the landlord agrees to grant you a new tenancy, you will not be able to ask the court to set reasonable terms if the landlord is unreasonable. Seek professional advice before committing yourself.

Further information

NB: The advice set out below is for general guidance only. While it has been compiled with care, and is believed to be sound and accurate, The Department cannot take responsibility for its application in individual cases, nor can it undertake to offer individual advice. You should take professional advice well before entering any legal commitments.

Further advice about taking on business premises are set out in an Communities and Local Government booklet Thinking of taking on business premises? Renting business premises - a short guide. Printed copies are available from Communities and Local Government Publications, PO Box 236, Wetherby LS23 7NB. Tel: 0870 1226 236, Fax: 0870 1226 237. E-mail: communities@twoten.com

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