HELP!!! Lease contract conditions-are these normal?

[Germanoff]

Hello everyone,

I am starting a new business a small (65m2) coctail bar and the shop I want to rent is a small unit in a village precinct. After a long time of enquieries with the council, I decided to go for the contract but the conditions the estate agent is giving me for the leasing are a little abusive in my opinion. This is my first busines so I have no experience with lease contracts and need your opinions.
Here they are:

- 5 year full repairing and insuring lease
- Break option after 18 months (subject to 3 months prior written notice, 3 months rent as penalty + L/L legal fees incurred)
- Rental deposit (£1,750)
- Rent: 7,500 pa(x)
- Occupation: ASAP
- Change of use: to A4

Because completion of the lease is conditional on successful change of use, the property would be off the market for up to 8 weeks whilst we wait. The landlord therefore has asked that if the council decline your application to change it to A4 you would be liable for the landlords legal fees. This would be because in that 8 week timeframe the draft lease and licence to alter would be drawn up by solicitors to move forward as soon as you get approval, potentially missing out on other opportunities as well.

 

[s168]

This, from my limited knowledge, doesn't seem unreasonable. It's not abusive, but at the end of the day you are liable to any potential losses that arise from not obtaining the A4 change of use. The landlord can always rent his property out to someone else and not take on any risks or costs associated with something that is more to do with your business model than his property.

It's not great but the more you deal with other companies, you will soon realise that there is a strong tendency to shift every risk and cost to their favour. That's how they stay in business!

 

[kulture]

I would say that the landlords legal fees are the least of the things they are trying on.
How long has it been empty, and how much competition, if any, is there for the property.

The problem is probably that you have given the impression that this is the only property for you, and that yo will not walk away from a bad deal.

For a start what about an initial rent free period, to recompense you for all the money you are going to spend improving his property. Secondly are they seriously suggesting you swallow a three month fine and their legal fees if you call in the break clause? Thirdly I would avoid a full repairing lease. Finally if you cannot get change of use planning permission, why would there be legal fees? Why would they draw up a lease before they know it will be needed?

There is also no meantion of a rent review, is this right?

 

[sla3]

You want my opinion? Buy one of my bargepoles. It's far from unusual, but is completely unrealistic for these economic times - unless it's a prime retail location.

Kulture has some good questions and observations, but - assuming this is an empty property in a small village that you've been talking about for some time - you take control of the negotiations: reject these conditions and substitute your own. Then haggle from there. making sure "there" is way below what you've described.

By the way: is your village bucking the trend for FEWER people spending LESS money on discretionary / luxury items like cocktails? Just a thought ....

 

[David A]

Terms seem far to onerous to me.

If you agree to a full repairing lease, for your own protection you have to have a basis on the condition of the premises when you move in, particularly if the property is less than pristine. The only sure way to protect yourself from heavy exit repair costs is to commission a condition report that the landlord agrees to.

Unless something is agreed on paper, do not assume.

Never forget that the law is heavily in favour of landlords.

 

[kulture]

I have done this, converted a shop to a cocktail bar. Many years ago when bars made money. I did it in a city not a village. It costs a lot to set up a bar from scratch. It is typically cheaper to buy an existing bar or pub.

I would seriously question your business plan.

 

[deniser]

Do not agree to a penalty for exercising a break option. This is not standard practice. The rest seems fair enough.

 

[sla3]

The rest seems fair enough.

Commonplace perhaps, but hardly fair.

This has to be a lessee's market if ever there was one. The OP should play hardball or walk away. This is NOT the time to be doing a deal on terms that owe more to the boom years than to the bust ones. OTOH, the business idea might really be a winner, but it's still a lessee's market!

 

[MOIC]

- 5 year full repairing and insuring lease Try to avoid a full repairing lease, get advice on what it means if you do not understand, as this could incur you in thousands of pounds in dilapidations at the end of your lease. Consult a surveyor.
- Break option after 18 months (subject to 3 months prior written notice, 3 months rent as penalty + L/L legal fees incurred) Delete the 3 months rent as penalty.
- Rental deposit (£1,750) Par for the course.
- Rent: 7,500 pa(x) Was this the asking rent ? Have you negotiated ?
- Occupation: ASAP It's reasonable on a 5 year lease to assume a 6 month rent free period, however as you have a break clause at 18 months, then I think a 3 months rent free period is fair and should be accepted. (You can try for more, but settle on no less than 3 months)
- Change of use: to A4 Just agree the 'Heads of Terms' and don't incur any expenses until the Change of Use has been approved.

Because completion of the lease is conditional on successful change of use, the property would be off the market for up to 8 weeks whilst we wait. The landlord therefore has asked that if the council decline your application to change it to A4 you would be liable for the landlords legal fees. This would be because in that 8 week timeframe the draft lease and licence to alter would be drawn up by solicitors to move forward as soon as you get approval, potentially missing out on other opportunities as well.
Do not agree

Good luck!

 

[sla3]

OP: have a look at this thread. Very informative, I thought ....

http://www.ukbusinessforums.co.uk/forums/showthread.php?t=238453

 

[Germanoff]

Hi all,
I want to thank everyone for the adivce, it was incredibly helpfull.
Today I sent the agent my new conditions. He told me before there was a third party interested and and accepting the conditions I mentioned before, but now he semms to be willing to negotiate.
Anyway I accept that it would be fair to give some compensation if they take the property off the market for 8 weeks so I proposed someting arround 300-400 pounds if I do not get the license.
So now fingers crossed, I am waiting for a final answer and if it's positive you will all have a free drink once the bar is open!!!

 

[kulture]

There always is a "third party"! Can I suggest that you run some of these ideas you have past a solicitor, before it goes much further.

 

[sla3]

It would be fair to offer some compensation for taking the property off the market for 8 weeks if:

- it hadn't already been on the market for X weeks with no interest
- there was a queue of people wanting to take out 3 year leases right this minute in your village.
- you weren't doing the landlord a favour by paying him for a property that's going to be empty until the end of the Age of Austerity

These people are not your friends, they are sharks. Get out your Shark Gun. Err ... Rod. Whatever: go hunt shark!

 

[kulture]

Also talk to the local council planning officer about the likelihood of the change of use etc being granted. He might say that you stand no chance whatsoever, in which case you are wasting your money.