DTM Legal’s Oliver Andrews offers some advice to SMEs on what to look for when renting a new office building
They say the average person moves house nine times in their life. We all know how stressful and expensive it can be but this is a small operation in comparison to a business move.
Research has found that small business owners and managers consider moving premises to be one of the most stressful tasks.
It is no wonder with an estimated cost of £40,000 attributable to the actual move, which in itself results in an average loss of 8 working days. For some businesses these costs come before factoring in removal and setting up costs, never mind making sure BT can accommodate your timescales.
Even so you should not be put off. Moving premises is part of the progression of any successful business, swift action will help you expand and break into new markets. Here we take a look at how to make the move as easy as possible and to get the most out of your new premises for your business.
1. Know what you want
Know what your business needs. Consider the reasons for your move, are you expanding or streamlining? Prioritising the key requirements, whether they are price, space or location, will enable you to effectively search for a property and negotiate the terms of your occupancy.
Be prepared to qualify these requirements. Speak to your bank and ensure you have a realistic financial plan. This will ensure your property search is realistic and help you avoid having to pay significant rent deposits or provide onerous guarantees to wary landlords.
2. Location, location, location
There is good reason for the cliché but location should be balanced against the needs of your business. Whatever the balance make sure you know your location and the market!
Speak with a commercial agent and keep in touch with them. You will find something much sooner once they know what you are looking for. A good agent can also be of great assistance in early negotiations.
3. The property, is it in a usable condition?
As much as the location has to suit your business needs so does the property. Check that the requisite planning permission is in place allowing you to use the premises for your current business operations and any expansion plans in the pipeline.
You must also be aware of the property’s condition and any hidden defects. Whilst the initial outlay on a schedule of condition, electrical survey or asbestos report can seem unattractive this will protect you from significant risks, unexpected dilapidations claims and improve your bargaining power.
4. A flexible term is key
As discussed in a previous article, your business’ premises can become its biggest burden without due care being given to the lease under which you occupy it.
In order to mitigate such the risk you should seek to negotiate a break clause allowing you to terminate the lease during the term. This will allow you to grow, restructure or re-locate your business as required. This may involve conceding in some areas of negotiation with the landlord but the benefit will often override these concessions.
5. Search for the right rent and keep it low.
Of course rent is an early consideration in your decision to lease a business premises. Instructing a surveyor to undertake a valuation will ensure you are not overpaying but if a low rent is your priority there are a number of things you should look for.
A landlord with an empty commercial unit is more likely to offer a low rent, but don’t stop there. Float the idea of a rent free period at the start of the lease. Generally only seen in multi-year leases, a rent-free period will allow your business to settle in and fit out whilst you will relieve a landlord from paying business rates on an empty property.
Negotiate a rent review that suits your business model and reflects the market value of the property.
6. Taxation and Business Rates
A larger than expected tax bill can turn an attractive prospect into an expensive one.
Take a note of the VAT position in the lease. If VAT is not payable on the rent then the lease should contain a clause restricting the landlord’s ability to opt to charge VAT in the future, if you can’t fully recover the VAT.
Any Stamp Duty Land Tax payable against your lease is calculated against the term and rent (as varied by rent-reviews, rent-free periods and break clauses). Although it cannot be truly calculated until terms have been agreed you should have a rough idea as you enter into negotiations.
Finally check the business rates with the local authority and the availability of any reliefs, such as small business rate relief.
7. Capital Allowances
Often an afterthought, a claim for capital allowances can result in a significant tax saving.
Should your move into new business premises involve a significant outlay on fitting out then you could be able to claim for purchases such as carpets, air conditioning units, fire extinguishers and IT equipment etc.
The situation becomes complicated when the landlord/tenant relationship is involved and should be addressed as soon as possible in your negotiations.
8. Repairing obligation
Much of the professional advice you receive throughout negotiations with the landlord will seek to limit your exposure to risk, none more so than with repairing obligations.
This represents a huge area of litigation and you should seek to clearly define and limit your repairing liability to the interior of the building or by reference to a schedule of condition, preferably both.
9. Get to know your landlord
A good relationship with your landlord, or whoever they nominate as a point of contact, will assist throughout your time as a tenant and in the negotiations prior. Just be careful not to commit to an obligation during any informal conversations.
No matter how good a relationship you strike up you are not responsible for the landlord’s legal fees and you should politely decline any request to do so.
10. Know what you have signed up to
Now you have your ideal business premises you need to look after them and the lease.
There will be numerous dates that crop up throughout your occupancy, some you just need to be aware of, others may require action.
You should diarise the aforementioned rent review and break dates to give yourself enough time to react, especially in the case of the latter as notice is often required at least 6 months in advance and is no simple task.
Any obligation to decorate expressed in the lease should also be noted. This will often be in the last year of the term but can be imposed every 3 to 5 years.
As you can see there is much to consider when renting business premises. Above all else you must enter negotiations with your eyes open, information is power! Seek advice as early as possible and get it right from start to finish.