The complete guide to leasing an industrial property
How to find the right industrial unit for your business and make sure the lease is on the best terms possible.
If you need to find business premises to manufacture, warehouse, test or distribute goods you’ll need to rent an industrial space.
There’s a wide variety of industrial units to choose from so it’s important to consider your criteria carefully and weigh up the costs involved to get the right property for you at a price you can afford.
What is an industrial lease?
This is an agreement with the landlord of an industrial premises, such as a factory or laboratory, that gives you exclusive use of it for a specified period of time.
Provisions of the lease you’ll have to comply with are likely to include responsibility for repairing and maintaining the building – internally only or externally too – and paying for “dilapidations” at the end of the lease, which usually means leaving the property in at least as good a condition as when you moved in.
The lease could be as short as six weeks or as long as six years or more but you will usually get a better deal on a longer term. It’s a good idea to commit to as long a lease as you can but if you can negotiate a break clause this will give you the flexibility to leave the premises earlier if necessary.
Researching the local market
Looking into the market in your chosen area, including average rents in different types of locations and how much demand there is for industrial units, will help you make sure you’re getting a good deal and negotiate the best price and terms.
You can do this by looking at properties being advertised on online property portals and seeing how long they have been on the market for to assess demand, or by talking to local letting agents (although remember that they work for the landlords).
Well-known residential property websites such as Rightmove and Zoopla also include commercial properties and there are specialist sites including Realla and Movehut.
When you’re deciding where to lease an industrial unit, look into whether you can locate yourself in one of the many enterprise zones designated across the UK. Businesses in these areas get tax breaks and support from the government. Visit the government websites for England, Scotland, Wales and Northern Ireland to find out where they are.
You may be able to get support through your local enterprise partnership (LEP) – there are 38 across England. These are partnerships between businesses and local authorities to decide on priorities for the area to boost economic growth. There are also business improvement districts (BIDs) where all businesses pay an extra levy towards projects that will help businesses in the area.
Requirements to consider
Aspects to think about when searching for a suitable unit include the size of unit you need, what proportion of it needs to be offices and the configuration that would best suit your activities. For example, if you will be using racking, a taller building with less floor space is more economical, or whether you have any special requirements, such as extra power capacity or cranes and how much security you need.
Another important thing to consider is access – look at parking facilities, where deliveries can be unloaded, the number of doors the property should have, whether you can access it at all hours, the impact your activities might have on the local area, especially if it’s residential, and the traffic and road conditions near the property.
Also, will the building be ready to move into when you need it or will you need to adapt it to your needs or wait for building work to be completed?
All commercial units have a use class that determines the type of business they are allowed to be used for. If you want to use it for something else you may need to get planning consent from the local authority and you’ll also need permission from the landlord.
Costs to budget for
When you’re working out what you can afford it’s not just the rent (usually paid quarterly or sometimes monthly) and rent deposit (usually three to six months’ rent) you need to consider.
As well as repairs and maintenance, and dilapidations at the end of your lease, other costs include business rates, which will be around 50% of the rental value of the property (known as the rateable value) if it’s above £12,000 as estimated by the Valuation Office Agency. You get a discount on your bill if the value is £12,001 to £15,000.
If the property is in a BID you will also have to pay the levy for this of 1% to 4% of the rateable value.
You will usually have to pay a service charge to maintain any common parts of the property and will have to pay for insurance to cover the contents of your unit and public liability. The landlord will usually insure the building for you.
Landlords normally charge VAT on the rent and service charge but you may be able to claim this back. There’s also the cost of utilities – the landlord will give you the energy performance certificate so you can see what the unit’s typical energy costs are – and legal and possibly surveyor’s fees when setting up the lease.
You can reduce your costs by deducting all or some of the value of assets you buy for your business, such as equipment, machinery and vehicles, from your profits before you pay tax. Other costs you can offset are your day-to-day running costs, interest payments on loans you have taken out to buy assets and the cost of renovating your premises.
Negotiating the terms of your lease
When you have viewed properties you are interested in and found one that fits the bill, make an offer to the landlord’s estate agent. You can ask for a proposal to consider beforehand to get an idea of the level of rent that would be acceptable. Once your offer has been accepted, which may be after some negotiation, you should ask the landlord to take it off the market.
You’ll then need to agree on the terms and conditions of your lease with the landlord to make sure it suits you both. Aspects you may want to negotiate on are the length of the lease, the notice period to terminate it, break clauses, whether the rent will be reviewed during the lease, and whether you can sublet the property, store things outside it or change its use.
You can choose whether the lease will be inside or outside the Landlord & Tenant Act. There are pros and cons to both so you should get legal advice about what is best for you.
Alternatively, you may be able to use the property under licence for a shorter period, which could be up to six months. This is likely to be a cheaper option but your position won’t be as secure as with a lease.
Completing the deal
It’s a good idea to commission a survey to check the condition of the property (as it’s likely you’ll be liable for repairs) and get local searches done to identify any planned developments that may affect your premises. You should then draw up a “heads of terms”, a document summarising what you have agreed with the landlord along with the date you intend to finalise the deal by.
When you have finished your checks and are happy to go ahead, contracts will be exchanged, initial funds will be transferred and the deal will be legally binding. Then it’s time to get the keys and move in.
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