Commercial property lease - potential costs and pitfalls?

[Exben]

Hi there

I've outgrown the space I'm using at home and am looking at leasing an old 1200 sq. ft. workshop just across the road, but I'm worried about some of the potential pitfalls associated with leasing commercial property and would really appreciate some insight.

What costs should I expect? I've accounted for:

• Rent
• Electricity (3 phase - supply more expensive?)
• Broadband
• Water
• Insurance

No rates to worry about as eligible for relief.

I'm going to build a self-contained office inside the warehouse and heat/dehumidify that for desk work, to save on bills.

The lease is repairing and insuring, not in my favour, so I expect to pay a surveyor and solicitor as part of the process of negotiating to something reasonable. The property has been empty for years because access is very problematic for light industrial use, but I can deal with the access issues. I'm hoping that works in my favour as the landlord should be keen to get it rented, but given how long it's been empty and its age (Victorian-era), disrepair could be an issue. I really don't want to get stung badly and I'm very wary as this is the first commercial lease I'll have entered into.

Any thoughts? Suggestions on what to watch out for? Other costs?

Many thanks

 

[Mark T Jones]

In terms of priority, I'd put legal at the top of the list.

Are you able to utilise the unit as is?

Security
Business interruption

I'm sure others will be along soon

 

[Exben]

Thanks Mark.

Legal is definitely my biggest concern as most things I feel in control of, whereas legal or surveying fees just seem to go on and on sometimes.

Security is a minimal concern due to nature of the property. I've lived across the road from it for 7 years and only recently realised it was even there. No windows except Velux, and an alarm system installed.

Good point about business interruption - I understand that could be covered by insurance but I'm sure it's more complicated than that.

It's currently an empty, albeit watertight, shell of a building. I'll build a self-contained office in one corner, move my equipment into the workshop area and get myself a pool table for when I need some downtime, happy days. That's the idea.

Best

 

[sarky]

Can't you ask your landlord to insure/repair if you are improving the site with an office? Or conversely get the landlord to build the office.

Try to avoid paying the landlord's legal fees: most people expect to do it (and many here will tell you it's 'normal') but try to negotiate out of doing it.

Perhaps add deposit and intruder alarm and to your list.

 

[DoolallyTap]

Watch out for full insure and repair, get a surveyor to photo all areas of concern and list absolutely everything before signing a lease. If you erect an office the landlord may require it to be removed when the lease expires and any changes you make to the fabric of the building may need to be removed, replaced repaired etc, at your expense. Why bother building an office, just erect a garden shed inside, easier, cheaper and simple to remove.
Old, dilapidated, empty for ages, prime site for vandalism, why has it been left empty for so long. Get the landlord to agree a rental tenancy, easy in easy out.

 

[Exben]

Thanks both

Yeah full insure/repair is my main concern and I've instructed a solicitor to try and negotiate interior decoration only. My (solicitor) friend reckons I've got more solicitor than I need for this and they're not cheap, c. £1250, but I figure that it'll save me money down the line.

Good idea about photos for the surveyor's report, there are a couple areas I don't like the look of (staining on interior walls, missing stonework etc.)

It's old but I wouldn't describe it as dilapidated, and because of location I doubt if anyone even knows it's there so vandalism shouldn't be an issue. Surrounded by overlooking residential properties but nonetheless feels private, tucked away up a steep driveway, in a small town. The roof looks sound and is lined; structurally it does look decent. I think it's been empty for three years because access is very difficult, LWB van is about the largest vehicle you're getting up there. But I'm also getting the sense the landlord just isn't that bothered about renting it, to the extent that he's insisting on a clean trade and no noise because he doesn't want to hassle the neighbours. Which is fine but puts me at a disadvantage in negotiations. At first I thought he must live nearby and would be one of the neighbours, but apparently not, the agent just thinks he's considerate and wants minimal hassle.

Garden shed is my interim plan while I throw a plasterboard office together (landlord doesn't want to know), which should be straight-forward enough to remove at the end of the lease if he insists. It's 6 years with a break clause and rent review at year 3. I'm planning to try negotiate the rent review as well but again, not sure he'll budge.

Yeah new alarm will be necessary I reckon, I'll add that to the expenses. I had a look again and the one fitted looks ancient.

 

[kulture]

Well you are doing the right thing by having a solicitor. Make sure that you tell them your plans for an office etc.

Points to watch out for include insurance, rent reviews, and hidden liability.

Landlords naturally want their property insured. They typically insure it and get the tenant to pay. This does not incentivise them to go for a cheap insurance. I have known landlords to also get commission from the insurance broker or company so gets kickback from getting an expensive insurance.

Rent reviews need to be properly defined and makes such that the landlord doesn’t take the piss and double or more the rent.

As for hidden charges, you don’t want things like inspection fees, service charges, solicitor fees, etc etc etc

 

[IanSuth]

Is it currently connected to utilities and if so make sure you get full details of the contracts and renewal dates