Renting commercial property
Learn how to find the right commercial property to rent and how to negotiate the best lease possible
Renting a commercial property for your business, such as a shop or office, rather than buying it means you’re not tying up a large amount of capital that could be invested in the business instead. You also won’t be affected by the value of the property going down or mortgage interest rates going up, and you can relocate more easily if the property later becomes unsuitable.
You should still research the local property market beforehand to see how much rent you can expect to pay and how much demand there is for commercial property. This will help you negotiate the best deal possible when you find the perfect premises. And you should also still employ a specialist solicitor to help you negotiate the lease and carry out checks on the property.
If you only want a property for a short period of time – up to one year only – consider licensing one instead. Renting a serviced office space is another option.
Finding commercial property to rent
There are a number of places to look for available properties. The big residential property portals, such as Rightmove and Zoopla, also show commercial properties for rent and there are specialist commercial property websites such as NovaLoca and Realla.
Other options are contacting commercial letting agents directly (look for boards displayed on available units to see the main firms operating in the area) and looking at local newspaper ads and the local council’s website. You can also appoint a commercial agent or commercial surveyor to find the right property for you.
When you’re searching for a property, the location will be one of the most important factors, especially if your business relies on passing trade. It’s also worth looking into locating yourself in one of the UK’s enterprise zones, local enterprise partnerships and business improvement districts, which can all help your business.
Consider the unit’s size and whether it’s big enough for the number of employees and the activities you intend to carry out as well as the parking and delivery facilities, the equipment already installed or that you’ll need to install yourself, and whether the property will still suit you as your business grows and changes.
Other important aspects include transport links – for both employees and customers – local amenities, the broadband speed available, the impression the property will give to customers and staff, and any restrictions imposed by the lease.
You’ll also need to make sure that the property has been classified by the local planning authority to be used for the activities you want to carry out there – there are different use classes for shops, restaurants and cafes, and offices among many others. You’ll usually need to get planning permission to change its use or extend or alter it as well as permission from the landlord.
Commercial renting costs
The rent itself is likely to be your biggest outlay (and you may be asked to provide a rent guarantee), which will be payable quarterly or sometimes monthly, but there are many other costs you should factor into your budget when you’re working out what you can afford.
You’ll have to pay a rental deposit equivalent to three to six months’ rent, service charges for the maintenance of the shared parts of the property, such as hallways and lifts, and business rates – in England and Wales, this is up to around 50% of the open market rental value of the property according to the Valuation Office Agency, although you don’t have to pay it if the value is £12,000 or less and may get discounts in other circumstances.
Other running costs include utilities and energy (the energy performance certificate the landlord must give you will tell you how much you can expect to pay), decoration and maintenance of the property and, in some cases, VAT on the rent. You’ll have to pay for buildings insurance, which is usually arranged by the landlord, contents insurance and security, and there may be other local charges.
When you’re setting up the lease, you’ll need to pay legal fees, commercial letting agent fees if you’re using one and possibly stamp duty (land and buildings transaction tax in Scotland and land transaction tax in Wales) depending on the value of the lease. This takes into account the length of the lease, the lump sum paid at the start, the rent and any responsibilities the tenant has, such as repairing the property. There will also be moving costs.
Bear in mind that you can offset some of your costs, such as buying assets for your business against the profit you pay tax on through capital allowances, which will reduce your overall expenses.
Negotiating the lease
Once you’ve found your perfect property and you have made an offer to the landlord (usually through the estate agent) that has been accepted, you’ll need to make sure the terms and conditions of the lease suit you and your business as much as possible. It’s a good idea to ask the landlord to take the property off the market at this point. The lease sets out the rights and responsibilities of you and your landlord and is a legally binding contract between you.
Aspects of the lease to consider negotiating are the length of the lease, which is usually between 3 and 25 years, the rent, break clauses, which will allow to you end the tenancy early if necessary, how often rent will be reviewed, whether you can sublet the property (this will give you flexibility if you find you need to relocate during the lease) and rent-free periods.
Also, will you be able to renew the lease at the end? If it is decided that the lease will come under the Landlord & Tenant Act, you’ll have the right to stay.
You should also check what repairs and maintenance you’ll be responsible for, what condition you’ll be expected to leave the property in at the end of the lease – in some cases, you may have to leave it in a better condition than when you moved in – and who is responsible for health and safety aspects.
When the main elements of the lease have been decided, the agent will draw up a “heads of terms” document summarising them, although this isn’t the final contract. It will also set out the timeframe for completion of the deal.
It’s a good idea to carry out a building survey of the property to check its condition and create a report on it that can be attached to the agreement and to carry out local searches to find out about any plans or issues that might affect the property or your business.
Exchanging contracts and completion
Once checks have been carried out, negotiations have been done, finances are in place and all parties are satisfied, the solicitors will exchange contracts. Once you pay the balance of the initial payment, the deal is complete and you can collect the keys and move into your new business premises.
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