Any advice on negotiating a retail lease?

[sonofkath]

Hi all,

My business is making it's first move into city centre retailing. However, we've never negotiated a retail lease before.

It would be massively helpful if anyone had any advice on tactics / tips and tricks for negotiating a better deal than the one advertised by the agent.

Thanks

 

[mhall]

EVERYTHING is negotiable: look at non repairing leases, free months rent up front, make sure you have a break clause, put it in the name of a Limited Company with no Directors guarantee. Make sure you have an electricity certificate, don't pay the landlords solicitor costs - use that money to find the best one for you. Realise the agent is just trying to get a commision, has no interest in the property itself and is working solely for the Landlord and himself. Double check service charges, Rateable Value and Rates payable, check to see if the area is in a BID area - more expense. Stay away from listed buildings unless you like fighting with the council. Choose your electricity supplier with care. Double check the building itself- floors and ceiling tend to be the more expensive things to sort out. If you have a good floor and good lighting, your move in costs will be slashed.

and on a more basic level- check where you can put rubbish bins, cost of collection, check what signeage is allowed, including A boards. Count the foot fall for as long as you can, as often as you can, and countt he right kind of footfall. Talk to your potential neighbours, and listen to half of what they say- they may have an agenda themselves.

 

[sonofkath]

[FONT=&quot]Great reply by mhall… thanks![/FONT]
[FONT=&quot] [/FONT]
[FONT=&quot]We have now found a property we're interested in taking on - which is advertised at £1050 per month. We have put an initial low ball offer in for £850 per month. [/FONT]
[FONT=&quot] [/FONT]
[FONT=&quot]The landlord has countered with:[/FONT]
[FONT=&quot] [/FONT]
· [FONT=&quot]- 6 year FRI lease at £900/month for the first year; £1050/month years 2 & 3 and £1,150/month for years 4,5 & 6. [/FONT]
· - [FONT=&quot]A break clause could be inserted at the end of year 3 subject to 6 months' notice.[/FONT]
· - [FONT=&quot]A deposit of £1800 would be required for the duration of the term.[/FONT]
· [FONT=&quot]- A contribution of £350.00 plus vat for the preparation of the lease.[/FONT]
[FONT=&quot] [/FONT]
[FONT=&quot]It's a commercial, full repair and insuring lease (FRI) the premium for the insurance would be paid by the tenant to the landlord - the insurance is £100 per annum. [/FONT]
[FONT=&quot] [/FONT]
[FONT=&quot]First of all, does anyone have any thoughts on the landlord's offer? Secondly, any advice on how to counter?[/FONT]
[FONT=&quot] [/FONT]
[FONT=&quot]Also, do break clauses typically apply to both parties? Or can we have it so that only we can take advantage of the break clause - I don't want the landlord kicking us out before we want to leave! Finally, I don't like the sound of the FRI - the agent says it not an issue and that if the roof blows off in the wind the landlord will want a contribution to the repairs but the insurance would cover it anyway![/FONT]
[FONT=&quot] [/FONT]
[FONT=&quot]Thanks[/FONT]

 

[Banned]

A decent solicitor should be able to cap the amount payable on any one incident on the FRI, make sure all the clauses concerning repairs are preceded with "reasonable", again a decent solicitor will do this anyway.

Your not really gaining if you accept their offer, it works out the same as the original asking price.

I wouldn't pay any of their legal costs.

Breaks are usually both ways, shouldn't be an issue if you pay your rent on time etc. Better to have a two way break than no break.

The deposit is reasonable.

 

[deniser]

EVERYTHING is negotiable: look at non repairing leases, free months rent up front, make sure you have a break clause, put it in the name of a Limited Company with no Directors guarantee. Make sure you have an electricity certificate, don't pay the landlords solicitor costs - use that money to find the best one for you. Realise the agent is just trying to get a commision, has no interest in the property itself and is working solely for the Landlord and himself. Double check service charges, Rateable Value and Rates payable, check to see if the area is in a BID area - more expense. Stay away from listed buildings unless you like fighting with the council. Choose your electricity supplier with care. Double check the building itself- floors and ceiling tend to be the more expensive things to sort out. If you have a good floor and good lighting, your move in costs will be slashed.

and on a more basic level- check where you can put rubbish bins, cost of collection, check what signeage is allowed, including A boards. Count the foot fall for as long as you can, as often as you can, and countt he right kind of footfall. Talk to your potential neighbours, and listen to half of what they say- they may have an agenda themselves.

This is a really good post. Spot on!

 

[mhall]

Your not really gaining if you accept their offer, it works out the same as the original asking price.

I agree, sounds like an agent playing games and not wanting to negotiate at all (or lose his bonus)

Stick to your guns, I think your offer is reasonable in todays climate and with the expecterd further downturn you should insist its fair (thats the argument anyway, they will counter with "it cant be that bad, you want to open)

Don't pay their costs and insist on seeing the insurance schedule. The FRI isn't an issue to the agent but it bloody well will be to you if something goes wrong.

Many people are asking for a deposit but you can usually talk them out of it nowadays if you are stubborn unless it's a top notch location. If not, make sure it is ring fenced in an interest gaining account and you get it back after a fixed length of time - the shorter the better.

 

[Banned]

Actually I've been a prat, their offer has increased the rent over the six year period by £2,400. They are having a laugh.

Make an offer of £950 a month with no increases over the six years (get your breaks etc as well) and say that's it and walk. Unless it's a fantastic and sought after unit they will call you back.

 

[sonofkath]

Many people are asking for a deposit but you can usually talk them out of it nowadays if you are stubborn unless it's a top notch location. If not, make sure it is ring fenced in an interest gaining account and you get it back after a fixed length of time - the shorter the better.

If the lease was say 6 years; at what point would you suggest we ask for it back?

Thanks

 

[sonofkath]

Thanks again for your replies, it's already been massively helpful.

Do you think I should ask for a non FRI lease - or is that unlikely? I'm just worried about getting screwed with an FRI.

I don't know if it's relevant but it's on with another agent too - joint agency I think it's called.

I'm going to have a good chew on what you've said and make a counter offer on Friday. I will of course keep you in the loop!

Thanks

 

[Banned]

You can ask for whatever you like, so go for it. It'll also kick of negotiations and make you look a bit more like you know what your on about. Please take this the right way, but their counter offer to you looks like you may have come across a bit "green". Nothing wrong with that, we all were once.

Oh, if you haven't yet already appoint a solicitor do so now. The agents will ask who you are using and it shows you are professional, serious and ready to go.

 

[mhall]

If the lease was say 6 years; at what point would you suggest we ask for it back?

Thanks

I would suggest half way through the lease, or whenever a break clause is activated

 

[mhall]

Thanks again for your replies, it's already been massively helpful.

Do you think I should ask for a non FRI lease - or is that unlikely? I'm just worried about getting screwed with an FRI.

I don't know if it's relevant but it's on with another agent too - joint agency I think it's called.

I'm going to have a good chew on what you've said and make a counter offer on Friday. I will of course keep you in the loop!

Thanks

Realistically, unless there is something seriously wrong with the building, your stance on the FRI is merely a negotiating tool. Somewhere down the line someone will have to pay the insurance and you are actually negotiating on the price of the insurance premium. You will probably end up accepting it but my point is that you should never just accept it without negotiation or argument, it's just another turn of the screw for the agent. Just make sure you see the schedule so you know exactly what is and isn't covered.

 

[kelvin1950]

The premises we've been negotiating on were originally advertised as an FRI. We flatly refused this and ended up with an internal only with a capped service charge/insurance premium. We did have to throw our toys out and tell the landlord we were walking away though. It will be worth it in the end but we've been negotiating this since July. Hopefully we'll sign the lease on Tuesday.

I'd say decide what you want and don't be browbeaten by the landlord or his agent telling you that they're doing you a favour by offering you such a good deal. IMO, commercial landlords still haven't realised that there's a financial crisis. The shop we're taking on is slap bang in the middle of a high street in a very wealthy south east england village. Five years ago it would have been empty for a few weeks. It's been empty since June.

I agree about the solicitor, get one who understands the local area rather than using your day to day man.

 

[kulture]

Realistically, unless there is something seriously wrong with the building, your stance on the FRI is merely a negotiating tool. Somewhere down the line someone will have to pay the insurance and you are actually negotiating on the price of the insurance premium. You will probably end up accepting it but my point is that you should never just accept it without negotiation or argument, it's just another turn of the screw for the agent. Just make sure you see the schedule so you know exactly what is and isn't covered.

FRI is more than just the insurance. You do not make this 100% clear. By accepting an FRI you are accepting liability for the building. Full maintenance of the building. Even if the building is new and perfect, you will need to pay for a survey now, and at the end of the lease, and draw up an accurate schedule. So why not say no to FRI and save yourself the expense and worry.

Apart from anything else, it will make the lease much more attractive should you need to sell the business and/or assign the lease.

 

[sonofkath]

[FONT=&quot]Hi guys,

Just to give you an update I put the following offer in:[/FONT]
[FONT=&quot] [/FONT]
[FONT=&quot]- 6 year lease at £950/month [/FONT]
[FONT=&quot]- Initial two months' rent free period[/FONT]
[FONT=&quot]- Two break clauses inserted at end of year 2 & end of year 4 subject to 3 months' notice.[/FONT]
[FONT=&quot] - A deposit of £1900 returned at the half way point or upon a break clause being activated*[/FONT]
[FONT=&quot] - No contribution for the preparation of the lease - we will use this towards the cost of own solicitor[/FONT]
[FONT=&quot] * The deposit should be ring fenced in an interest gaining account.[/FONT]
[FONT=&quot] [/FONT]
[FONT=&quot]
The agent and landlord wanted to meet me at the property yesterday so I popped to see them. The landlords countered with:[/FONT]
[FONT=&quot] [/FONT]
[FONT=&quot]- 3 year FRI lease at £950/month [/FONT]
[FONT=&quot]- 1 month rent free period[/FONT]
[FONT=&quot]- No break clause[/FONT]
[FONT=&quot] - A deposit of £1900 held by landlord for entirety of the lease - no interest to me[/FONT]
[FONT=&quot] - Waiver contribution for the preparation of the lease [/FONT]
[FONT=&quot] [/FONT]
[FONT=&quot]He stated that he'd rather have a 3 year lease with no break clauses. I said I'd prefer to sign a 6 year lease with break clauses as I am guaranteed there will be no rent increase for 6 years (the rent is very low for its location - even in this climate). He said he wouldn't guarantee there would be no increase in rent after 3 years anyway in a 6 year contract! He also said that break clauses are only for the benefit of us as the tenant as we would have right of tenure anyway, and therefore he can't activate a break clause unless we weren't paying rent.[/FONT]
[FONT=&quot] [/FONT]
[FONT=&quot]Regarding his requirement for an FRI lease, he said that as the building is large with flats above and many other retail tenants adjoined to us; we'd only be responsible for the internal of the shop we would occupy and that the only item not covered under the insurance would be if windows were smashed.[/FONT]
[FONT=&quot] [/FONT]
[FONT=&quot]I welcome your thoughts…[/FONT]
[FONT=&quot] [/FONT]
[FONT=&quot]Thanks[/FONT]
[FONT=&quot]Russell[/FONT]

 

[kelvin1950]

[FONT=&quot]Hi guys,

Just to give you an update I put the following offer in:[/FONT]
[FONT=&quot] [/FONT]
[FONT=&quot]- 6 year lease at £950/month [/FONT]
[FONT=&quot]- Initial two months’ rent free period[/FONT]
[FONT=&quot]- Two break clauses inserted at end of year 2 & end of year 4 subject to 3 months’ notice.[/FONT]
[FONT=&quot] - A deposit of £1900 returned at the half way point or upon a break clause being activated*[/FONT]
[FONT=&quot] - No contribution for the preparation of the lease – we will use this towards the cost of own solicitor[/FONT]
[FONT=&quot] * The deposit should be ring fenced in an interest gaining account.[/FONT]
[FONT=&quot] [/FONT]
[FONT=&quot]
The agent and landlord wanted to meet me at the property yesterday so I popped to see them. The landlords countered with:[/FONT]
[FONT=&quot] [/FONT]
[FONT=&quot]- 3 year FRI lease at £950/month [/FONT]
[FONT=&quot]- 1 month rent free period[/FONT]
[FONT=&quot]- No break clause[/FONT]
[FONT=&quot] - A deposit of £1900 held by landlord for entirety of the lease – no interest to me[/FONT]
[FONT=&quot] - Waiver contribution for the preparation of the lease [/FONT]
[FONT=&quot] [/FONT]
[FONT=&quot]He stated that he’d rather have a 3 year lease with no break clauses. I said I’d prefer to sign a 6 year lease with break clauses as I am guaranteed there will be no rent increase for 6 years (the rent is very low for its location – even in this climate). He said he wouldn’t guarantee there would be no increase in rent after 3 years anyway in a 6 year contract! He also said that break clauses are only for the benefit of us as the tenant as we would have right of tenure anyway, and therefore he can’t activate a break clause unless we weren’t paying rent.[/FONT]
[FONT=&quot] [/FONT]
[FONT=&quot]Regarding his requirement for an FRI lease, he said that as the building is large with flats above and many other retail tenants adjoined to us; we’d only be responsible for the internal of the shop we would occupy and that the only item not covered under the insurance would be if windows were smashed.[/FONT]
[FONT=&quot] [/FONT]
[FONT=&quot]I welcome your thoughts…[/FONT]
[FONT=&quot] [/FONT]
[FONT=&quot]Thanks[/FONT]
[FONT=&quot]Russell[/FONT]

I would say stick to your guns, he needs you more than you need him. As for the FRI bit, if it's internal only then he should say it. To say that FRI means you're really only responsible for the internals of your bit is nonsense. Your solicitor (you have got one, haven't you?) should be shouting NO at this.

 

[Banned]

[FONT=&quot] He also said that break clauses are only for the benefit of us as the tenant as we would have right of tenure anyway, and therefore he can't activate a break clause unless we weren't paying rent.[/FONT]
[FONT=&quot] [/FONT]
[FONT=&quot]Regarding his requirement for an FRI lease, he said that as the building is large with flats above and many other retail tenants adjoined to us; we'd only be responsible for the internal of the shop we would occupy and that the only item not covered under the insurance would be if windows were smashed.[/FONT]

Check if the unit is in or outside the 1956 act, if it's outside then you have no right of tenure so breaks work both ways (something else to negotiate on!)

When you insure the shop you will probably find the window(s) will require a value added in the policy anyway.

 

[sonofkath]

Check if the unit is in or outside the 1956 act,

Would you mind expanding on this a little?

 

[sonofkath]

Your solicitor (you have got one, haven't you?) should be shouting NO at this.

At this stage we've not got a solicitor on board, but were planning to do so / if and when we'd got a suitable deal on the table.

 

[kelvin1950]

At this stage we've not got a solicitor on board, but were planning to do so / if and when we'd got a suitable deal on the table.

A mistake, IMO. A solicitor with experience of negotiating commercial leases will save you a lot of aggravation and money. Use one local to the premises, he'll have vital local experience.

 

[kelvin1950]

Would you mind expanding on this a little?

If your lease is outside the act then you have no security of tenure at the end of the lease. That's to say, the landlord can just say bye, bye and needs to give you no reason. If it's inside the act, it's much more difficult for him to refuse negotiation of a new lease if you've complied with the existing one.

 

[Doodle-Noodle]

A mistake, IMO. A solicitor with experience of negotiating commercial leases will save you a lot of aggravation and money. Use one local to the premises, he'll have vital local experience.

Ditto that ..... honestly it is absolutely IMPERATIVE to have a solicitor acting on your behalf; if you don't have one even at this stage the landlord/agent (who are both familiar with commercial conveyancing matters and know exactly how to bamboozle you with legal terminology) will be able to con you into thinking they are offering a good deal when they may well not be.
Seriously, get a lawyer ........ even if it costs you a couple of hundred quid for a lease you end up not proceeding with (gutting, I know) it will be money well spent.

 

[sonofkath]

A mistake, IMO. A solicitor with experience of negotiating commercial leases will save you a lot of aggravation and money. Use one local to the premises, he'll have vital local experience.

Point taken... I'll take your advice immediately.

Thanks

 

[Stuart Bailey]

instruct a local commercial surveyor to negotiate terms. You may have to pay around £500 but if they save you £1,000 of your annual rent, you have made a gain. You will also know you are paying the market rent and not an inflated price.

Stuart Bailey of Thomas Guise solicitors

 

[Stuart Bailey]

just catching up on the threads. Yes do instruct a solicitor preferably me, but you still need to take the advice of a surveyor to make sure you are paying the market rent.

The reference to 1956 Act is wrong its the Landlord and Tenanct Act 1954, known as the 1954 Act.

It gives commercial tenants security of tenure. Which means that towards the end of your lease the landlord must serve you notice if he wants to evict you or negotiate the terms of the lease. If he wants to evict you he can only do so on certain grounds and pay you compensation (but its not a huge amount). The landlord can get these rights removed but you have to swear a declaration to agree to that. That is normal for a short term lease ie up to 2/3 years in length.

Stuart Bailey Thomas Guise solicitors

 

[Stuart Bailey]

In respect of the repair, if there are other tenants in a building, normally the landlord will repair the structure ie the walls, roof and foundations and you repair the interior. If you have a shop front that is your responsibilty. Interior will also include doors, windows and their frames.

The landlord will normally recover the cost of the repairs through a service charge. If that is the case try and get a cap on the sercice charge ie no more than 40% of your rent.

But check the condition of the building because work may be required which is not insurable ie the roof needs repairing due to the age of it. Its not an insurance matter but the landlord can recover it through the service charge. For example if you pay 40% of the landlord's service charge and the he repairs the roof at £100,000 you'll have to pay £40,000.

You can avoid payment of that by getting the roof specifically removed from the sercvice charge cost BUT make sure he is still responsible for the repair of it. Hence the reason to instruct a solicitor.

 

[ExportMan]

Very good thread. the information I was looking for. Thank you.

 

[athanne]

Mhall with the rest of the members actually have great advice in here for you. I totally agree with what they are passing out for you. It is great advice that will help you from disappointments.

 

[sonofkath]

Mhall with the rest of the members actually have great advice in here for you. I totally agree with what they are passing out for you. It is great advice that will help you from disappointments.

Yes I am immensely grateful to everyone for their help and advice on here. I'm going give a running commentary of what happens throughout the process.

 

[BoBo_184]

the economy is in pretty tough shape... many shops have closed and remained vacant... landlords are well aware of this situation...

it is a good time to negotiate for a low rent... if a shop remains vacant, landlord gets nothing... even if you are paying less for your rent, it is an income they wouldn't otherwise have...

 

[sonofkath]

Hi all,

Sorry for my delay in updating this... it's been a busy old time. I'm pleased to say that I successfully pulled off the deal. I ended up with a lower rent and a couple of months rent free. We agreed a 5 year lease with a break clause at the half way point. Regarding their request for a guarantor we got this capped.

I'm pleased to say that I instructed Stuart Bailey of Thomas Guise solicitors (one of the posters on this thread). I cannot recommend Stuart enough to anyone looking to take on a commercial lease. The fact that he was not on my doorstep made no difference - and we corresponded via phone, email and video conference on skype without any issues. Stuart did a great job and without him we wouldn't have got the deal we did.

I also want thank everyone who posted on here. I went into this process very green and thanks to everyone involved I've learned a great deal. I'm sure this thread will prove helpful to others in the future. Thanks!!

 

[Doodle-Noodle]

Thanks for the update, well done and good luck with it all! How exciting!

 

[kelvin1950]

I'm pleased for you. Several months of reading this forum was worth 10 years education to me when I negotiated my lease and we're opening on 4 weeks time! Scarey stuff.

 

[Doodle-Noodle]

I'm pleased for you. Several months of reading this forum was worth 10 years education to me when I negotiated my lease and we're opening on 4 weeks time! Scarey stuff.

Ooooh, you gonna tell me where? We are neighbours after all!

 

[greenwisehandbags]

be well prepared and do your advanced research in that area before talk to your agent and get the best deal.

 

[kelvin1950]

Ooooh, you gonna tell me where? We are neighbours after all!

I was gonna call in today but had to get over to the shop to help our painter. I let him stay inside and I spent the afternoon up a ladder outside finishing off a few bits. I can almost feel my feet again!

I will come in and introduce myself, I promise. We won't be neighbours though, our shop is about 15 miles from you, on the way to Camberley.