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Specialist advice is a wise move

Whether buying or renting your premises, the cost of the space you occupy will be a major cost to the business. Stephen Chown, of Chown Commercial offers economic advice and solutions in connection with commercial property.

 

WE all hate surprises (in business) and understanding the financial implications of all your lease terms is vitally important, otherwise you will add extra expense to your already over-stretched budget.

When taking new premises, a document called heads of terms should list precisely what you will be expected to do and pay for: it may sound daunting, but it will always be subject to contract (i.e. not yet binding on the parties) and will give you the chance to see all the terms on one sheet, rather than spread between several letters or emails. If you are not 100 per cent sure about everything – both at the beginning and end of the lease – take some advice.

Once you are signed up, you should set up an automatic payment from you bank for the rent and service charge. Landlords and managing agents who act for them like to see the rent coming in on the date it is due. It’s a reasonable expectation: you’ve signed a contract to say you will, so if it’s late, that’s breach of contract. Put like that it sounds more serious! Staying friends with the landlord is really important. If you were to struggle to make the rent at any time they will be much more accommodating if you’ve got a good record and if you communicate with them. Telling them afterwards is like borrowing your mate’s car and leaving him to find that you’ve left it on empty.

Costs that can come out of nowhere often relate to the condition of the building. If you own it, it makes sense to keep it up to scratch. If you’re the tenant don’t wait until the end of the lease to do repairs: they will always cost more if you leave them. One day’s blocked gutter is the following month’s internal plaster repair and redecoration job. Keep the gutters clear!

At the end of the lease, if the property is in tip-top condition then the landlord will take it straight back. If you have a full repairing lease your obligation is to keep up with the housekeeping throughout the lease and redecorate/repair at the end of the lease. If it looked tired when you took it on maybe you had a schedule of condition done. Digital cameras make a photographic schedule easy to produce nowadays and for a few hundred pounds a surveyor will give you peace of mind that you won’t pay for someone else’s repairs at the end of your lease. If you’re just taking on a new property this is worth considering.

A common myth is for tenants to assume that ‘it was like that when I took it on – so it’s okay’. If the defect was not documented in a schedule of condition then it will probably fall to the tenant to make good before handing the property back at the end of the lease. This is especially common where a tenant takes an assignment and occupies for the last two or three years of an existing lease.

You may find yourself responsible for taking down someone else’s partitions and making good if the premises were clearly open plan at the start of the lease. Before signing up it is important to know exactly what will be expected of you in two, three or five years’ time. This is information that a surveyor will offer you.

Commercial leases can often be more than 50 pages long and the short ones may have pitfalls created by what is left out. Even before you sign up you may be expected to agree to pay the landlord’s solicitors fees, i.e. an undertaking. If this is agreed between the two parties then place funds with your solicitor ASAP as this is the single most common reason for early hold-ups. Nothing will happen until the money arrives and it is the quickest way to wind up your new landlord.

The next most common way is to be slow with references and to send a credit reference from someone to whom you actually pay cash on delivery.

Most business leases are governed by the Landlord and Tenant Act 1954 Part II and this must be adhered to closely. When you come towards the end of a business lease each party gives each other notice before you move out or renew. At present the commercial market is mostly characterised by a lack of supply: don’t leave it until the last minute to think about where you will be working this time next year. It takes much longer than you think to relocate.

Leases also have rent reviews which are less rigidly governed by time limits, but which can nevertheless catch out the unwary tenant. Reviews are best carried out just before the stated date as the evidence upon which they rely is fresh and up to date. If you leave a review unsettled you may well accrue interest and will certainly have to pay the increase over the delayed period in one lump. The exact wording of the lease will also affect the outcome so again professional advice may save a company unnecessary additional cost.

Stephen Chown is a qualified chartered surveyor and has more than 25 years’ professional experience in commercial property advice. Before committing your company to several years of increased costs a consultation with a chartered surveyor is a wise move. Knowing what to budget for and knowing it is at the right price will help the profitability of your business as well as your peace of mind.

Chown Commercial can be contacted on 01604 604050 or via www.chowncommercial.co.uk

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