Leasing Help Retail store (Bricks and mortar)

[Retailstartup]

Hi I am currently in the very early stages of negotiating a lease on a small retail unit. The unit is in an area where there is fantastic footfall for potential customers. I have a few questions regarding the lease and property that I hope this forum will be able to help with. The prospective shop unit could be subleased from the current lease holder or taken out on a full lease from the landlord to my business what advice would you give from having experienced sub leasing versus leasing directly? Would you recommend a contract break after what time? Also I would like to negotiate on the current lease price with is £12,000 per annum what kind of discounts could ask for when starting up with the landlord? The building needs some work to bring it up to date, current the flooring and walls refurbishing what advice would you give with regards to on-going works etc. when negotiating at this stage.

 

[and_next]

I am just in the process of my first myself. The advice I got suggested first year rent free, to cover your refurb costs, and a break after 2 years. We are settling on 2 years half price, a 3 month free period after year one, and a break after 3 years. The lease is for 10 years, £12k a year, I originally offered 10k a year. I would imagine it completly depends on the building and landlord though. Other things to consider are a survey, at least a schedule of condition, and your insurance and repairs obligations.

 

[Mayor]

Do not sign for a full repairing lease. These were the norm a few years ago, but don't do it now. I have several properties on the go, and strangely the one with the worst lease conditions has cost me the least, but one of my newer ones has turned into a bit of a money pit, as the landlord seems to want to restore the entire property at my expense...Make sure you have a solicitor involved.

 

[and_next]

Mayor, on the full insuring and repairing lease, the landlady of the property I am keen on is adamant she will not budge on this, the solicitor I have spoken with says the same as you. Do you have anything that I can use to argue against this with, the solicitor suggested a cap on repair expenses which seems a good idea. From what the landlady suggests is that any signifiacny repair bills would go through the insurance to which she will pay half of the excess. From what you are saying is that rather than it be emergency repairs that are needed it could be general maintenance/modernisation, thanks

 

[kulture]

I would walk away. The only way to negotiate is it draw a line and if you cannot agree walk away. If you give in on this, as you seem to be doing, then you lose all chance of any further negotiation as you come across to them as desperate for the property.

Why should significant repair go though insurance. Insurance companies do not normally maintain buildings. Take the first advice of your solicitor. DO NOT SIGN a full repairing lease.

 

[and_next]

I would walk away. The only way to negotiate is it draw a line and if you cannot agree walk away. If you give in on this, as you seem to be doing, then you lose all chance of any further negotiation as you come across to them as desperate for the property.

Why should significant repair go though insurance. Insurance companies do not normally maintain buildings. Take the first advice of your solicitor. DO NOT SIGN a full repairing lease.

All other negotiating has been done, prices, breaks, length, rent reviews have been agreed.

What does your building insurance cover? I assumed it was for significant emergency repair.

 

[kulture]

Building insurance is for things like fire, flood, subsidence, storm damage etc. It is not there for maintenance nor and problems arising from whatthey say is down to lack of maintenance. For example my local gym has a flat roof. In the recent poor weather much of the roof blew off. However the insurance company refused to pay any claim because the roof had not been "properly" maintained.

If there is no risk or likely cost involved, WHY is the landlord not moving on this?

 

[and_next]

Building insurance is for things like fire, flood, subsidence, storm damage etc. It is not there for maintenance nor and problems arising from whatthey say is down to lack of maintenance. For example my local gym has a flat roof. In the recent poor weather much of the roof blew off. However the insurance company refused to pay any claim because the roof had not been "properly" maintained.

If there is no risk or likely cost involved, WHY is the landlord not moving on this?

Im told it is because all her other leases are like this, I dont know if she even knows herself...or could just be playing dumb, I have asked her. Ill keep this post updated in case it helps anyone else out.

I will be having a survey done, which the figures are subject to, so I am assuming I can adjust accordingly to cover any improvements that would need to be done. I dont think I will sign a full insuring and repairing lease without at least a cap on what the repairs could be.

 

[MOIC]

Totally agree with Kulture.

Do not get involved with anything involving a Full Repairing Lease.

Get your solicitor (or preferably a building surveyor) to Fully Explain to you the cons of a Schedule of Dilapidation.

It could cost you thousands, literally.

Don't do it (but good luck if you do)

 

[kelvin1950]

Mayor, on the full insuring and repairing lease, the landlady of the property I am keen on is adamant she will not budge on this, the solicitor I have spoken with says the same as you. Do you have anything that I can use to argue against this with, the solicitor suggested a cap on repair expenses which seems a good idea. From what the landlady suggests is that any signifiacny repair bills would go through the insurance to which she will pay half of the excess. From what you are saying is that rather than it be emergency repairs that are needed it could be general maintenance/modernisation, thanks

Yup, say "Bye, bye". She'll fall into the real world eventually. Remember, despite what you think, she needs you more than you need her.

 

[deniser]

I will just answer the outstanding question which is whether the OP should take a sublease or a headlease.

Definitely get the existing tenant to surrender his lease at the same time as the landlord grants you a new direct lease.

This way you will:
1. be able to negotiate your own lease terms and not be stuck with what your predecessor agreed - as a sublease is usually modelled on the superior lease
2. not be tied to lease length of the headlease
3. not be in danger of the intermediate lease being forfeited and your sublease going with it

As for the issue of the full repairing lease, don't take it on unless the building is immaculate (a survey will determine) or the lease is watered down in terms of your obligations. For example, common provisos to add are:

1. that you need to pay for anything that puts the building into a better state of repair than it is at the outset (evidenced by a schedule of condition)
2. that you only pay for repairs and not renewals - this means for example that a roof can only be patched up and not renewed
3. that you pay only for essential repairs which are absolutely necessary

etc etc

 

[MOIC]

I will just answer the outstanding question which is whether the OP should take a sublease or a headlease.

Definitely get the existing tenant to surrender his lease at the same time as the landlord grants you a new direct lease.

This way you will:
1. be able to negotiate your own lease terms and not be stuck with what your predecessor agreed - as a sublease is usually modelled on the superior lease
2. not be tied to lease length of the headlease
3. not be in danger of the intermediate lease being forfeited and your sublease going with it

As for the issue of the full repairing lease, don't take it on unless the building is immaculate (a survey will determine) or the lease is watered down in terms of your obligations. For example, common provisos to add are:

1. that you need to pay for anything that puts the building into a better state of repair than it is at the outset (evidenced by a schedule of condition)
2. that you only pay for repairs and not renewals - this means for example that a roof can only be patched up and not renewed
3. that you pay only for essential repairs which are absolutely necessary

etc etc

I think any astute landlord would only issue a new lease on the same terms (at least) as the lease they are going to surrender.

Given the fact that there is refurbishing to do within the building, there is likely to be a dilapidation bill involving high costs.

It seeems to me that the current lessee wants to pass this on to the OP.

The OP must get advice from a surveyor to assess dilapidation costs, whether they are going to entertain a sub lease or a new lease.

 

[deniser]

I think any astute landlord would only issue a new lease on the same terms (at least) as the lease they are going to surrender.

Not necessarily.

As the new lease has been offered, there is always room for negotiation.

 

[MOIC]

Not necessarily.

Thats been my experience.

I have been renting both retail and commercial property for over 30 years and have yet to find a landlord that would issue a new lease on less favourable terms than the old lease.

Yes, it happens....................but, very very rarely.

Given the OP's shop that is being referred to has "fantastic footfall", it would not be in the interest of the landlord to "reduce" the terms from the current lease which they have secured.

 

[Retailstartup]

Thank you everyone for your comments they are very much appreciated! your opinions have really helped us re-evaluate about the possible options available when negotiating the lease. I will keep you posted with how we progress.

Many thanks

Stephen

 

[benb]

It depends on how much you want the shop. Some landlords are just stubborn about certain points.

 

[harper101]

Totally agree with Kulture.

Do not get involved with anything involving a Full Repairing Lease.

Get your solicitor (or preferably a building surveyor) to Fully Explain to you the cons of a Schedule of Dilapidation.

It could cost you thousands, literally.

Don't do it (but good luck if you do)

Agree with you!

 

[harper101]

Hi Stephen.

Thanks for sharing here your concerns.
We also learn from each of us here.
May all be well for the lease negotiations.