17 month remainder of 16 year lease - shop

[Indivijewelistic]

I am a new business start up and I have found a shop that meets all the criteria I need.

Its on a good well walked parade and has A1, in the middle of 3 schools, next to 2 well used cashpoints at Barclays bank, next to a busy office block, opposite a busy cafe and petrol station, good family residential all around, by a bus stop, 1 minute from church halls with brownies, over 50's groups, shops nearby are a nail bar and hairdressers (I am a bead/jewellery making store), three parking spaces to the rear and additional parking available in local streets, all the internals are what I need and it seems in a good state of repair (but has some damp in the basement) and at some point has had a hole punched through an external wall to put in an air conditioning unit (looks like a DIY job). As it is the end of the lease I effectively have a 17 month break clause.

Because of delapidations I have haggled with the owner to set up this 17 month remainder of the lease on my Ltd Co. only (no personal liability).

I am going to instruct a surveyor to do a survey as if they were assessing it for delapidations and will also video the interior prior to signing a lease.

I am taking legal advice (tomorrow) but would like to know if anyone here can see a GIANT mistake I am about to make (or even a little one).

As always, all and every piece of advice is much appreciated.

 

[kulture]

I have never understood why people take on leases which are full repairing. It is always better to negotiate for an insuring and internal decorating only lease. You may not get it if there is competition for the property. But if the property has been empty for a while, and the Landlord is needing a tenant, then why not negotiate a better lease.

Also why bother with the remains of an old lease. Why not go for a new, potentially better lease, with break clauses built in.

Personally I would go hire an expert commercial negotiator rather than a surveyor. Someone who can negotiate me a lease that does not leave me exposed to ANY dilapidations.

 

[Spongebob]

Presumably you are negotiating with the previous tenant to buy the remainder of the lease - or to take it off their hands. Meanwhile you are in contact with the landlord.

As said above, why not simply negotiate a new lease directly with the landlord on more favourable terms. Play hard-ball. These are very tough times for commercial landlords and you definitely have the upper hand.

If there is a lot of work needing doing to put the shop in good order you should be able to get a few months rent-free.

 

[deniser]

1. it seems in a good state of repair (but has some damp in the basement) and

2. at some point has had a hole punched through an external wall to put in an air conditioning unit (looks like a DIY job).

3. As it is the end of the lease I effectively have a 17 month break clause.

4. Because of delapidations I have haggled with the owner to set up this 17 month remainder of the lease on my Ltd Co. only (no personal liability).

5, I am going to instruct a surveyor to do a survey as if they were assessing it for delapidations

6. and will also video the interior prior to signing a lease.

A few things arise:
1. You need to get a survey done in conjunction with reading the lease to see what it says about repairs. Most commercial leases require you to hand the property back to the landlord at the end of the term in good condition - regardless of what the condition is at the beginning of the lease. You could be taking on quite a liability here if the property has been let for 16 years already.

2. This will need to be repaired and you should get the outgoing tenant to do this as it is unlikely he has permission for this anyway.

3. You are thinking about a break clause but do you have rights of renewal? If the lease is "contracted out" you won't have rights to renew. Even if it isn't contracted out you may not have rights to stay if the landlord wishes to redevelop for example.

4. You may have agreed this with the outgoing tenant but the landlord may not agree to this

5. This is sensible but only if you can get some money from the outgoing tenant to pay for any works

6.This won't help you as the condition of the property when you moved in is irrelevant to the condition you need to leave it in

I agree with the other posters, that you should seek to do a three way deal with the landlord and the outgoing tenant for a surrender by him and the grant of a new lease to you in the form that is satisfactory for you including a provision that the premises need not be left in a better state than they are now evidenced by a schedule of condition, a renewable lease in case your business does well and you want to stay, and break clauses if it doesn't.

 

[Indivijewelistic]

I did ask the owners agent for a new lease, but he said that there was no reason for the owner to agree to it since he was already receiving rent from the current tennant. I did have a solicitor discuss it with him, but he is resolute that a new lease cannot be granted as yet. I am seeing a new solicitor today, hoping she is a little more hard hitting.

Hence the post to ask for advice - all of which much appreciated - I will take notes with me in my little black book.

The lease is within the act, so I can renew and the out going tenant (I am advised) is part of a bigger company who could do the repairs to the building).

I have looked at serveral shops in the area and the problem is either extortionate buisness rates, high rental rates, in the back end of nowhere, too delapidated to even think about, have no gas or electric, run down squalid outside loo (not girly at all) and no room inside for one (one even had the previous tenant die in it - I am not too screamish but it also looked like a Hammer House of Horror set). - It' slim pickin's out there for a gal on a budget! Also, there is plenty of competition with new business start up going on all the time.

Thank you for all the advice, it is much appreciated and I will be taking it with me to the meeting today.

 

[Indivijewelistic]

Oh yes, forgot to mention that the owner of the property and his agent are related - I don't suppose that is any great shakes, but it might be why he is resolute that a new lease is not an option at the moment I suppose.

 

[Rhodes100]

The owner of the business would be in a better position if you signed a new lease with the landlord as it would remove him from his obligations if you were unable to pay the rent for the remainer of the lease for whatever reason. So the agent is not blocking this it is the landlord.

It would be preferable for you to negotiate a new lease now for two reasons. Firstly because when the lease is assigned to you there will probably be just over a year left. So in a years time you will have to pay further legal fees to renew (legal fees times two).

Secondly in 17 months time the landlord is probably hoping that the market rent increases. If he agrees a new rent now with 5 year rent reviews be you will be paying a lower rent for about 3 years.

Otherwise you seem to be doing the right thing by instructing a surveyor, you will just have to assess the schedule of dilapidations. And either demand that the outgoing tenant carries out this work prior to assignment, or you agree a reduction in the purchase price and you agree to carry out these repairs.

I assume that you have verfied that the purchase price for the business is also reasonable?

 

[kulture]

It is always better in my opinion to hire a professional negotiator. It can make all the difference. They would get more "respect". They can play hard ball. They can and will if necessary say "I will recommend to my client to walk away from this". You on the other hand seem to be committed in your own mind anyway. This will show. A local professional will also bring local knowledge and be able to advise you on what may be happening in the area and indeed may know about other properties becoming available.

 

[Indivijewelistic]

Thank you to everyone it helps to start a meeting knowing what the issues may be and what sort of bargaining stance to take. I took all the issues raised to the solicitor and she does, indeed, seem like she can play hardball.

Much appreciated.

 

[Chris Ashdown]

In your line of business do you really need a shop to work in, could you either work and sell in a stall at a local shopping centre or have a consession in a large store like debenhams

Both far less risk and maybe better footfall

Many shops are offered on monthly leases to fill them whilst waiting on the new big customer who never comes, look at the shops that just get taken over for christmas, you may be able to get a years lease on one of these to see if the whole idea of the shop works and if it does you can then consider moving

Always spend as little as you can when starting up and dont enter into any long term expenditure as you will normally find you need all your money as sales are dead slow at the start far less than you imagined, so think is a five year or ten year lease really what you want around your neck

We all wanted the best of everything when we started in business, but reality is you dont you just buy what you need when your sure of the return it will give you

 

[Rhodes100]

This person is buying an exisiting business rather than starting up in business so the sales are already and there is no prospect of non existant sales in the first few weeks.

What the OP is doing it is in fact less risky than your alternative.

 

[deniser]

This person is buying an exisiting business rather than starting up in business

Where does it say that in the posts?

 

[Indivijewelistic]

Apologies if I confused anyone.

I am taking over an old photographers shop and starting a bead shop/jewellery.

Yes, I can do it on line, but the competition is horrendous and some are long standing business. I have been in contact with central london wholesaler suppliers and they report that profits in bead shops (not the online ones) are up 30%, in a recession people turns to crafts etc. for hobbies and presents. Also making bespoke jewellery for weddings has taken off well (the bride likes to go into the shop to choose the colour). The London Bead Store says it is doing well inside the recession. Beadtime (started in recent years) has recently expanded to a second store and is starting a wholesale business.

Concessions stalls in malls are cheaper, but they a FREEZING COLD in the winter (take that from someone who sells poppies in it every November, I am dressed like and Eskimo). To make jewellery yoiu need nimble hands not cold ones. There is already a stall selling trinkets and hair slides and it does not seem to trade very well and has recently diversified to handbags.

Also, the business is quite diverse, it will run beading, precious metal clay, wire weaving, tatting and any other kind of jewellery lessons you can think of.

You can take over central stores during slack times, but apparently you still have to pay business rates for it (anywhere between 60,000 to 30,000 in central Enfield, the one I have is £2,309.00 per annum [with small busines relief]).

HOWEVER, if the out of centre one does well, I can always look at taking on a short term central bead store next year(as the one I am taking on has a basement you could stock to a whole years worth of beads in [once you have the money to container it in]).

 

[Chris Ashdown]

You can take over central stores during slack times, but apparently you still have to pay business rates for it (anywhere between 60,000 to 30,000 in central Enfield, the one I have is £2,309.00 per annum [with small busines relief]).

It's good news you are thinking of cheaper options, don't forget the 10 x Yearly rent and possibly empty shop rates if they come in or are applicable add up to a lot of money if you fail and cannot sub let for any reason, Myself I would limit my rental period to one or two years to start with or the 17 months offered by present leaser on the understanding at end of term original lease holder is responsible for lease repairs etc

If you are sucsesfull after a year or so then if there is any increase in rent to take over you will be able to work out if you can afford it or look elsewhere, The landlord will nearly always want continuity of a good tennant so call their bluff and fight teeth and nails for a safer option for you to start up

Like all things what sells well in one area may not in another, university towns may sell lots of cheaper fashion clothes whilst seaside towns may sell lots of impulse buys,

 

[Doodle-Noodle]

Good luck with this - we opened our art and craft shop in 2008 selling beads and jewellery making supplies initially as only a small part of our art and craft supplies. We never expected our beads to be as profitable as they have turned out to be, there's a huge demand out there for good quality affordable beads and jewellery making supplies.
Lots of people make jewellery to supplement their regular income, although these tend to buy in bulk onine. Many more people would like to make their own jewellery but don't know where to start.
If you can afford to designate a little space to offer workshops/demonstrations on beading and jewellery making this will boost your sales tremendously - I run regular bead workshops at our shop ALWAYS using beads that we sell and putting together little kits for attendees to buy at the end of the session. Sales of beads following these workshops are quite staggering and our profit margin from bead sales is way higher than on any other craft product we stock.
Go for it! Good luck!