Commercial Lease - Couple of Questions

[poppleropples1]

Hi. Looking for a bit of advice, I'm sure it's been asked before but I struggled to find relevant bits in the search.

I'm at the early stages of viewing and agreeing the lease for a property I'd like to take for a Cafe. For background, I currently have two other separate businesses, one of which is a high street shop, when I opened that place I quickly and (maybe) naively signed the lease and paid up etc in a matter of a few weeks - That was many years ago, and since then we get on really well with our landlord, no issues.

This time round however I'm a little more wary. I know the landlord has multiple properties and is already recommending what solicitor we engage etc, he seems quite on the ball, which might not be a bad thing, but it does mean I want to do my homework and don't want to be taken for a ride. We're going for a 5 year lease, 3 year break clause.

The rent on the unit we're looking at is quite a bit more than my rent elsewhere and so far we've negotiated a very small amount off, although I suspect it's the market rate, so that's fine. The unit itself has been freshly painted but it does need a decentish bit of work (no flooring is down, new toilet needed, broken window, damp/bubbling plaster in areas, new lighting etc etc), easily a month or two to get the place ready to trade. So a few questions just for a little guidance:

1 - What's the view on rent free periods whilst renovating? Is it normally a thing, or taking the mickey to ask for it?
2 - Legal fees, this hasn't been suggested, but my assumption is landlord and tenant pay for their own fees, would that be fair to assume?
3 - Deposits, in my other property we didn't put any deposit down, in this instance I know there will be one, 3 months fair to ask?
4 - My intention is to ask the landlord to make good somethings before we sign, broken window, damp etc. If he can't/won't, is it common practice to expect this is captured as an inventory of sorts on the lease?
5 - And lastly, maybe an odd one, the building is 5 stories high, we'd occupy the first two, the landlord owns the entire building with separate companies above. Would you push back on a requirement to also be liable for repairs to the roof?

These might be stupid questions, if so, educate me please! Cheers.

 

[Clinton]

Why did you not think to appoint your own solicitor and raise these questions with him?

 

[poppleropples1]

Why did you not think to appoint your own solicitor and raise these questions with him?

As I will be, I'm just doing my homework and seeking advice from those in the business community. My experience with solicitors in other areas of life has shown me that it's probably better to get more than just their advice alone.

 

[Clinton]

We get no end of cases like yours where we tell the poster they need to speak with a solicitor or accountant or whatever and they come back to say that yes they do intend to do that. It's usually bullsh*t. 9 times out of 10 they didn't consider consulting a professional and in the other cases they're hoping they'll get a comprehensive enough answer here to avoid paying money to a professional.

Reading your post carefully again, I see no intention of consulting with a solicitor and, instead, see someone who is seeking to do a DIY (as he did the last time).

My advice: If you're going to be using a solicitor, you'd be better off consulting the solicitor first, then coming here with any further questions (including questions that arise from the meeting with the solicitor).

 

[kulture]

I would echo a bit of what Cliniton says, you must use your own solicitor, and NOT one recommended by the landlord.

As in all commercial leases, everything is subject to negotiation. EVERYTHING. Depending on how strong a hand you have, and how desperate the landlord is to let to you, then you can (and should) ask for the earth. Many of these heads of terms are agreed before solicitors get involved, but it is always worth asking for advice from a solicitor before agreeing these details.

Why not ask for 6 month rent free and zero deposit. Certainly ask for the landlord to pay his own fees. Suggest an internal repairing only lease, why not? get an agreed schedule of condition.

If the landlord will not budge on you paying a proportion of structural repairs, I personnaly would walk away. If you do go down that route make sure that you understand what proportion you will be paying and ensure that you have input regarding what work is to be done and by whom.

 

[poppleropples1]

We get no end of cases like yours where we tell the poster they need to speak with a solicitor or accountant or whatever and they come back to say that yes they do intend to do that. It's usually bullsh*t. 9 times out of 10 they didn't consider consulting a professional and in the other cases they're hoping they'll get a comprehensive enough answer here to avoid paying money to a professional.

Reading your post carefully again, I see no intention of consulting with a solicitor and, instead, see someone who is seeking to do a DIY (as he did the last time).

My advice: If you're going to be using a solicitor, you'd be better off consulting the solicitor first, then coming here with any further questions (including questions that arise from the meeting with the solicitor).

Thanks for the input, Clinton. Well I'm sure you'll be pleased to know that I'm that 1 out of 10 where I do intend to consult a professional, I am however asking this on UK Business Forum, not UK Law or the equivalent... And as such I would like the views and anecdotal input of those in the business community, as a lease is also a business deal.

FWIW, my experience with solicitors tells me that everything can become very adversarial, very quickly, once they become involved, and I'd rather discuss some of these points with the landlord before we kick things to solicitors and hammer out the finer details. Hopefully in the process we get to an agreeable document sooner.

 

[poppleropples1]

As in all commercial leases, everything is subject to negotiation. EVERYTHING. Depending on how strong a hand you have, and how desperate the landlord is to let to you, then you can (and should) ask for the earth. Many of these heads of terms are agreed before solicitors get involved, but it is always worth asking for advice from a solicitor before agreeing these details.

Thanks, I appreciate the reply. I will, I'll see where I get to with it, it's an odd one this unit. It's in a brilliant location, brilliant, (my other retail premises is in the same stretch and we've seen footfall up 30% year on year) but has been empty for over a year now, no signage, no boarding etc, I just happened to know who the landlord was and that's how I've gotten the ball rolling. The flipside of this is that the landlord doesn't seem to be in a rush and was happy for it to be vacant long term. Fingers crossed we'll get somewhere with him.

 

[Mark T Jones]

It's pretty much covered above - in particular - use your own solucitor, who is experienced in commercial property

And crucially, irrespective of what is 'normal', value is specific to your business plan and projections

 

[MOIC]

1 - What's the view on rent free periods whilst renovating? Is it normally a thing, or taking the mickey to ask for it?
2 - Legal fees, this hasn't been suggested, but my assumption is landlord and tenant pay for their own fees, would that be fair to assume?
3 - Deposits, in my other property we didn't put any deposit down, in this instance I know there will be one, 3 months fair to ask?
4 - My intention is to ask the landlord to make good somethings before we sign, broken window, damp etc. If he can't/won't, is it common practice to expect this is captured as an inventory of sorts on the lease?
5 - And lastly, maybe an odd one, the building is 5 stories high, we'd occupy the first two, the landlord owns the entire building with separate companies above. Would you push back on a requirement to also be liable for repairs to the roof?

1. Usually depends on the length of the lease and whether you'll be adding something that will benefit the property when you leave. (Most landlords want it back to the original state). 1 - 3 months can be negotiated and many landlords will deduct this at the end of the lease.

2. Separate fees are safe to assume, although many landlords will ask for their fees to be covered. Argue this point. It's standard for your solicitors to communicate with the landlord's nominated solicitor.

3. 3 months deposit is fair and reasonable. This should be held in an interest earning account.

4. Get the landlord, as part of the HoT to make good everything related to the property . . ."broken window, damp etc" . . . .whats etc??. Damp can lead to many serious issues, especially for a food related business.

5. Repairs to the roof, as well as the building foundation and structural walls, are the responsibilities of the landlord. Their insurance will cover these areas. It's normal for each tenant to pay a proportion of the building insurance based on the % they occupy.

Strong advice - get a competent solicitor and ask a conveyance solicitor to view the property to advise you on all aspects of the your repair and maintenance responsibilities.. This may seem like overkill and an unnecessary expense, but a good investment in my book.

 

[MBE2017]

Pretty much everything has been said, all I would add is regarding rent free periods. As in any agreement the best outcome is a win win for both you and the landlord. So if you believe you need a month to bring the property up to scratch, use that as your negotiation figure, don’t be silly and ask for six months.

I once took on a derelict shop, and figured I would need at least three months to sort it out, which I asked for, the landlord offered six months since he knew it would be done to a very high standard. End of the day we were both happy.

 

[Mark T Jones]

One more thing - speak to @Paddy @ Hatch

 

[WaveJumper]

Hi. Looking for a bit of advice, I'm sure it's been asked before but I struggled to find relevant bits in the search.

I'm at the early stages of viewing and agreeing the lease for a property I'd like to take for a Cafe. For background, I currently have two other separate businesses, one of which is a high street shop, when I opened that place I quickly and (maybe) naively signed the lease and paid up etc in a matter of a few weeks - That was many years ago, and since then we get on really well with our landlord, no issues.

This time round however I'm a little more wary. I know the landlord has multiple properties and is already recommending what solicitor we engage etc, he seems quite on the ball, which might not be a bad thing, but it does mean I want to do my homework and don't want to be taken for a ride. We're going for a 5 year lease, 3 year break clause.

The rent on the unit we're looking at is quite a bit more than my rent elsewhere and so far we've negotiated a very small amount off, although I suspect it's the market rate, so that's fine. The unit itself has been freshly painted but it does need a decentish bit of work (no flooring is down, new toilet needed, broken window, damp/bubbling plaster in areas, new lighting etc etc), easily a month or two to get the place ready to trade. So a few questions just for a little guidance:

Well firstly glad to hear your taking proper legal advice as already mentioned by others.

1 - What's the view on rent free periods whilst renovating? Is it normally a thing, or taking the mic

Of course you can ask for a rent free period you can ask for anything you like, you can even ask for money towards a fit out in some instances a landlord would do this rather than offer anything else in the lease. Have you covered off lease term, rent reviews, exit clause and the list goes on ....... this is when a professional agent working on your behalf pays.

2 - Legal fees, this hasn't been suggested, but my assumption is landlord and tenant pay for their own fees, would that be fair to assume?

Yes

3 - Deposits, in my other property we didn't put any deposit down, in this instance I know there will be one, 3 months fair to ask?

Yes again its negotiation

4 - My intention is to ask the landlord to make good somethings before we sign, broken window, damp etc. If he can't/won't, is it common practice to expect this is captured as an inventory of sorts on the lease?

Yes ask for things to be put right, then get the place surveyed properly so you don't get caught out when you surrender the lease at a future date ie DELAPS plenty of threads on that topic.

5 - And lastly, maybe an odd one, the building is 5 stories high, we'd occupy the first two, the landlord owns the entire building with separate companies above. Would you push back on a requirement to also be liable for repairs to the roof?

These might be stupid questions, if so, educate me please! Cheers.

Well what if the roof leaks and floods out your floor, again proper advice required to review not only the lease requirements but also service charge obligations, you wouldn't want them "waited" against you and favouring the landlord

So ill finish where I started by saying glad you're getting some legal advice and of course this needs to be from a qualified commercial solicitor.

 

[Paddy @ Hatch]

Hi. Looking for a bit of advice, I'm sure it's been asked before but I struggled to find relevant bits in the search.

I'm at the early stages of viewing and agreeing the lease for a property I'd like to take for a Cafe. For background, I currently have two other separate businesses, one of which is a high street shop, when I opened that place I quickly and (maybe) naively signed the lease and paid up etc in a matter of a few weeks - That was many years ago, and since then we get on really well with our landlord, no issues.

This time round however I'm a little more wary. I know the landlord has multiple properties and is already recommending what solicitor we engage etc, he seems quite on the ball, which might not be a bad thing, but it does mean I want to do my homework and don't want to be taken for a ride. We're going for a 5 year lease, 3 year break clause.

The rent on the unit we're looking at is quite a bit more than my rent elsewhere and so far we've negotiated a very small amount off, although I suspect it's the market rate, so that's fine. The unit itself has been freshly painted but it does need a decentish bit of work (no flooring is down, new toilet needed, broken window, damp/bubbling plaster in areas, new lighting etc etc), easily a month or two to get the place ready to trade. So a few questions just for a little guidance:

1 - What's the view on rent free periods whilst renovating? Is it normally a thing, or taking the mickey to ask for it?
2 - Legal fees, this hasn't been suggested, but my assumption is landlord and tenant pay for their own fees, would that be fair to assume?
3 - Deposits, in my other property we didn't put any deposit down, in this instance I know there will be one, 3 months fair to ask?
4 - My intention is to ask the landlord to make good somethings before we sign, broken window, damp etc. If he can't/won't, is it common practice to expect this is captured as an inventory of sorts on the lease?
5 - And lastly, maybe an odd one, the building is 5 stories high, we'd occupy the first two, the landlord owns the entire building with separate companies above. Would you push back on a requirement to also be liable for repairs to the roof?

These might be stupid questions, if so, educate me please! Cheers.

Hi there, I am surveyor and spent 7+ years advising tenants on these kind of issues before they committed to taking leases on properties. So answers to your questions below.

1. Yes ask for one - they range massively. I have a shop under offer for a client whereby we have agreed 12 months rent free. And handover of the unit in shell condition. Rule of thumb for me is the equivalent to what your fit out takes. But then there should be additional if you are inheriting repairs/defects. Then you can try for a bit more depending on market conditions.

2. Yes. Each party should cover their own legal and professional fees. Don't accept anything less.

3. 3 months is market norm but there should also be consideration to how much the overall sum is. This one boils down to covenant strength - meaning how much security the limited company taking the lease can offer the landlord that the rent is going to be paid in full and on time.

4. First port of call. Ask the landlord to do all repairs required. You can get a building survey done and that will contain a list of recommended works. If the landlord is not prepared to do repair works then the minimum you should ask for is a photographic schedule of condition so you document the condition at the start of the lease and then you will not be obliged to take on these repairs at the end.

5. Repairs to the rood should be shared between the occupants of the building based on floor area. So therefore you should be charged 2/5th of the cost. Usually it's done on an ad hoc service charge.

 

[Paddy @ Hatch]

Hi there, I am surveyor and spent 7+ years advising tenants on these kind of issues before they committed to taking leases on properties. So answers to your questions below.

1. Yes ask for one - they range massively. I have a shop under offer for a client whereby we have agreed 12 months rent free. And handover of the unit in shell condition. Rule of thumb for me is the equivalent to what your fit out takes. But then there should be additional if you are inheriting repairs/defects. Then you can try for a bit more depending on market conditions.

2. Yes. Each party should cover their own legal and professional fees. Don't accept anything less.

3. 3 months is market norm but there should also be consideration to how much the overall sum is. This one boils down to covenant strength - meaning how much security the limited company taking the lease can offer the landlord that the rent is going to be paid in full and on time.

4. First port of call. Ask the landlord to do all repairs required. You can get a building survey done and that will contain a list of recommended works. If the landlord is not prepared to do repair works then the minimum you should ask for is a photographic schedule of condition so you document the condition at the start of the lease and then you will not be obliged to take on these repairs at the end.

5. Repairs to the rood should be shared between the occupants of the building based on floor area. So therefore you should be charged 2/5th of the cost. Usually it's done on an ad hoc service charge.

Contact me at [email protected] or book a call at www.hatch-retail.space to chat through in more detail.