Advice please on possible commercial lease

[aaron web designer]

Hi, I am looking at a possible commercial premises for a long term lease of 15 years.

I had a meeting with the landlord and wanted some opinions please.

The location and building layout is great for my needs as a beauty clinic.

It does need alot of work, probably around £70k to £100k.

The terms are:

15 year lease at £35k first 5 years, £40k next 5 years and £45k remaining 5 years of lease.

6 months rent free to refurb

Lease is on my limited company and landlord does want a personal guarantee.

Break clause every 5 years for both landlord and I. Landlords break clause is only on the basis of if he sells the building then he can trigger the break clause at year 5 or year 10 and he will then pay me £75k towards the costs of my initial renovation.

Just wanted thoughts on this please?

Thanks

 

[Mark T Jones]

A break clause should be 2-way (though the rebate will be one-way)

You need dedicated, professional legal advice- there are a lot of parts to a commercial lease

 

[fisicx]

It could be a great deal. But there could be all sorts of gotchas hidden in the lease.

As already suggested, you need to invest in a good commercial solicitor.

 

[Lisa Thomas]

Gosh - that's a long lease and a huge risk.

What happens if things don't work out after year one? You will have spent £100k decorating the landlord's premises for them, plus then they can chase you for 4 years worth of rent...?!

Many people think a lease is an asset but it's usually a liability.

I'm assuming you've been running your business for a long time successfully, which has given you the confidence to look for a new lease but things can change in business so quickly.

The landlord must be rubbing their hands together - why are you the one having to pay to refurb their premises?

 

[Lisa Thomas]

Have a look at this thread, any many more on here, about leases/landlords

https://www.ukbusinessforums.co.uk/threads/rent-lease-terms-get-out-clause.429659/#post-3268309

 

[WaveJumper]

As above get proper legal advice and if you are looking to spend those sorts of sums on fitting out you want a long rent free period.

Hopefully you have factored in all the other on costs business rates etc etc.

 

[DontAsk]

With those kinds of figures, get proper advice.

 

[Lisa Thomas]

I can recommend a solicitor who can advise you, if you don't find one on here. Feel free to dm me.

 

[aaron web designer]

Gosh - that's a long lease and a huge risk.

What happens if things don't work out after year one? You will have spent £100k decorating the landlord's premises for them, plus then they can chase you for 4 years worth of rent...?!

Many people think a lease is an asset but it's usually a liability.

I'm assuming you've been running your business for a long time successfully, which has given you the confidence to look for a new lease but things can change in business so quickly.

The landlord must be rubbing their hands together - why are you the one having to pay to refurb their premises?

Thanks for the replies. Yes it is a long lease, been established for 10 years and doing well, have outgrown current premisis. Rent is high but its prime area, still lower than other similar buildings in the area. Refurbing to create 10 treatment rooms plus bathrooms, kitchen, reception, is expensive. But isn't this how leases work, mostly tenants pay to renovate suitable to their business needs, they have offered to reimburse me £75k should they trigger a breakout clause every 5 years only on the basis if they sell with 6 months notice, otherwise they cannot trigger the breakout clause. Also 6 months rent free to renovate is good.

I may ask them for a breakout clause for me every 3 years and for them every 5 years and after first 3 years if I can remove the personal guarantee..

 

[fisicx]

Or you get your solicitor to do the negotiations. They can probably get a better deal than you can.

In fact get them to review the lease before doing any negotiations.

 

[Mark T Jones]

PGs seem a bit excessive if you are showing 10 years solid trading

 

[Michael Loveridge]

The first thing to say is that I would generally never recommend a client to take out a lease as long as 15 years these days. It’s impossible to predict anything like that far ahead, especially with regard to the rent.

There is currently a proposal to ban upwards only rent reviews for the very good reason that rents are falling in many areas, so a commitment to pay an ever increasing rent makes no sense at all.

My normal recommendation would be to agree a maximum term of five years. You have a legal right to a new lease at the end of that period, so why bother committing yourself to longer?

You also have to bear in mind that a lease of more than seven years needs to be registered at the Land Registry, which adds expense to the transaction. It will also attract Stamp Duty Land Tax of around £2,500.

You should not be giving a personal guarantee when your company has 10 years' of solid trading history. There is no justification for this at all, and I would be fairly confident that if you push back on this the landlord will drop the requirement.

 

[aaron web designer]

The first thing to say is that I would generally never recommend a client to take out a lease as long as 15 years these days. It’s impossible to predict anything like that far ahead, especially with regard to the rent.

There is currently a proposal to ban upwards only rent reviews for the very good reason that rents are falling in many areas, so a commitment to pay an ever increasing rent makes no sense at all.

My normal recommendation would be to agree a maximum term of five years. You have a legal right to a new lease at the end of that period, so why bother committing yourself to longer?

You also have to bear in mind that a lease of more than seven years needs to be registered at the Land Registry, which adds expense to the transaction. It will also attract Stamp Duty Land Tax of around £2,500.

You should not be giving a personal guarantee when your company has 10 years' of solid trading history. There is no justification for this at all, and I would be fairly confident that if you push back on this the landlord will drop the requirement.

Thanks for the feedback, I will try to drop the personal guarantee. Interesting point regarding land registry.

I thought its good to get the actual figures now for years 5 and 10 of rent increase beforehand, this falls just under the CPI of 2.5% (inflation) if that makes sense... plus I have breakout clause every 5 years. The Interesting thing that stuck out for me is that they are offering £75k cheque to me should they decide to sell the property probably to builders to knock down only in year 5 or 10 and their breakout clause is triggered only if they sell.

 

[fisicx]

There are a lot of ifs and buts around that £75k cheque. What does your solicitor say?

 

[Mark T Jones]

£75k is nice if it happens, but is strange as a primary motivator. And will undoubtedly be laden with conditions

Why not ask for a contribution to fit out instead?