Negotiating our first lease

[MrsI]

So, we've found our ideal property. Close to the centre of town, reasonable rent and we agree on the term including break clause.

But on the original letting agents particulars it said the lease was offered on an tenant internal repair and insurance basis. Something which obviously appealed to us. It also stated that both parties would be responsible for their own legal fees.

In our offer we asked for confirmation of these points. The letting agent responded saying his client would only consider a full repairing lease and wants us to cover the cost of his legal fees!

The property has been empty for about 7 months so we thought we'd be in a good position to negotiate. I'm happy to pay the asking rent (we went in lower but he said he's not willing to take less than the asking rent) as I think it's reasonable for the area but I don't want to take on a FRI lease. It was the landlord who showed us round the property and he seemed a reasonable man (older retired couple who have owned the building for many years) but I'm concerned that now he knows we are interested he's gone back on his original offering, now making the property less attractive to us!

So my question is can the FRI term usually be negotiated? Are most commercial leases on this basis? Do we stand our ground, point out that the original advert stated differently and risk losing the property?!

Any advice would be very welcome.

Many thanks,
MrsI

 

[FirstClassVirtualOffice]

The landlord can have in his lease whatever terms he wants (as long as they are legal of course) and it's up to you to try and negotiate or just walk away. If he is changing the goal posts, either the letting agents have the wrong details advertised and maybe you should complain to them that they wasted your time with misleading details or you wouldn't have been interested in the first place, or this could be the start of a slippery slope of a poor landlord - if he's messing with you now before you have even signed a lease, how will he be once you are in a contract with him?!!

You also need to view the actual final lease document and get a solicitor to look it over before signing up to anything.

Landlords seem quite happy to sit on empty properties and hold out for a tenant who agrees to all their terms. Some will negotiate first 1-3 months rent, especially if you are going to be making some improvements to it. e.g. decorating, security, etc.

I think you need to let the agent know you were unhappy at the advertised lease terms being incorrect, or if they were correct and the landlord has changed his mind, decide if that's the kind of landlord you want to have to deal with.

From what I know, most people pay their own legal fees so if he is changing goal posts where costs are concerned then he sounds greedy.

Like you say, he might be doing this because he thinks you are interested, and will want it so much you will agree to whatever he asks. You could go back to the agent and just put in your final offer, unless you think the business will still be profitable even if you have to bear these extra costs. My worry would be how he might treat you as a tenant in the future. Perhaps you should go visit some of his other tenants and see what they say about him.

 

[fairdealworld]

I agree with the previous poster. You have to be prepared to walk away from this. By all means challenge and negotiate but be prepared in your minds that you will walk away if you don't get an agreement in line with the original details given. Making that decision means that you might in fact succeed in the negotiations as it gives you a strong hand. Are you able to make contact with the owner of the property rather than the agents? Agents are sometimes happy not only to shoot themselves in the foot but the owner of the property too.

On the other hand giving way, even just a little, may land you with a very difficult landlord.

N.B. In my area despite the recession no premises have stayed empty for more than a couple of months except for one shop which was empty when I moved my business into the area 9 years ago. It is still empty even though umpteen people have viewed it and made offers for it. Why? Well the landlord (who lives above the premises), offers a reasonable rent and conditions. Prospective tenants accept the offer, then just before they sign the contract the landlord ups the rent by a large amount. Each prospective tenant in turn is lost in this way. Why does the landlord do this? Who can imagine? He keeps the 'To Let' sign in the shop window. He comes down personally and removes fly posters from the shop window, yet he scuppers every prospective tenancy by this bizarre behaviour. However much you like a place you have to accept that some landlords are to be avoided like the plague.

 

[deniser]

Agree with the above posters. I would steer clear. If you want to maintain good relations with the letting agent, there's not much you can do but if it doesn't matter, I would report them to their governing body - if they are a member of one - or the OFT.

 

[MrsI]

Thank you for your replies. I agree this doesn't give us a good impression of the landlord. It's just at the viewing he came across as quite a friendly respectable older man. We spent some time talking to him and his wife who told us they had owned the building since the 70's and had been used as their offices before they retired. My father viewed the property with me and we both commented on how he seemed like he would be 'an ideal' landlord! Typical!

I've tried to contact the previous tenant but have had no luck. Their phone number is no longer valid so I think they may have ceased trading rather than just moving premises (that doesn't concern me as it was used for a completely different purpose to my business). But I also don't have any way of contacting the landlord without going through the agent.

I don't know if it's perhaps because he knows we are a new start up he's trying to push his luck?! I think I'll go back this week with our final offer and see what his response is. Whatever happens I'm not going to be pushed into a lease that I'm not comfortable with.

 

[Bob]

This is quite a useful website if you are considering leasing premises

 

[10032012]

@MrsL, its not because you are a start up but because they know you are interested.

You have your heart set on this property.

I would simply turn round to the landlord and make the offer on YOUR terms.

Deal or no deal.

You already tried to reduce the rent and failed... you compromised, its now for him and his wife, to do the same and not change the terms that was advertised.

I would also point out, try not to upset the agents. They are all generally terrible, (I wont go into it!) but the chances are the next location will have them as an agent. Most agents operate blacklists.

 

[deniser]

The golden rule is never to trust your commercial landlord and get absolutely everything formally documented or at the very least in writing - that rule applies always!

 

[FirstClassVirtualOffice]

Just in case your gut was right and the LL was genuine, why not arrange for a second viewing with the landlord, and speak to him directly about it. Then you can waste his time if he is trying to be greedy. Or maybe like I said before, the agents didn't advertise the details correctly in the first place and it's not the LL's fault they advertised things incorrectly. Just a thought.

 

[10032012]

Agents regularly lie to:-

• Get interest
• Get an offer

Neither necessarily converts. Where I am, agents advertise properties that have been taken for months afterwards.

 

[thelegalstop]

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[MrsI]

Thanks for your replies and suggestions. Sorry I haven't been back to check the thread for a few weeks.

After a week of considering the landlords response to our original offer (and a chaser email from the letting agent asking if we were still interested) I went back and said I wasn't willing to proceed on an FRI basis. I asked if the LL had changed his mind over this or was it an error in particulars. I also proposed we both pay our own legal fees, as is only fair.

Fast forward 3 weeks and the LL has not responded! After two weeks of waiting I emailed the agent asking if they had had any feedback, they replied straight away saying they were waiting on the landlords response and would be in touch (no mention of the particulars being correct or not?!)

Do you think the LL just biding his time hoping we'll go back again and do everything on his terms? Is it normal for the negotiation process to take weeks or even months?

We are continuing to look for other properties whilst waiting on this but as of yet nothing suitable has come up. I'm afraid I've made the mistake of getting my heart set on this property so no others compare! But at the same time I don't want to get stuck with a difficult landlord so I'm keeping that in mind and continuing the search!

 

[Down not out]

It is quite common for commercial premises to be leased on a FRI basis. The only exception would be property part of a larger complex. If you are taking on a FRI lease make sure to get a thorough schedule of dilapidations done and then agree any exclusions. For example, if the roof is shown to have serious defects, you wouldn't want to be landed with a bill for £30k when your lease comes to an end.

LL's asking for their legal fees to be paid are common but in reality no one does. People may if the property is in high demand but your post suggest otherwise.

Look out for the Personal Guarantee clause in the lease and DO NOT agree to this. If anything goes wrong in the coming years, you don't want your LL coming to you personally for the rent due for the whole term.

The agent will be hungry for their commission but will smell a keen buyer from a million miles away. Stick to your guns, you've submitted your offer, now hold on and wait for them to chase you. Keep looking as a back up as they will find out about this and will be keener to negotiate to close the sale.

Good luck!

 

[MrsI]

Thanks for your reply Down not out. Yes, I have noticed the majority of commercial properties in our area are offered on an FRI basis. I have contacted a couple of building surveyors and received quotes of around £600 for a Schedule of Condition to be prepared. Does this cost sound about right?

My understanding is if we were to proceed with any FRI lease, we'd get a schedule of condition done to check the current state of the building. And if there were any major problems identified we'd need to agree with the LL to get the issues resolved before signing the lease. But what happens if issues are found with the building and the LL refuses to put them right?! We'd then be back to square one but £600 out of pocket!

Maybe I'm being overly cautious about this but I just don't want to risk being hit by a hefty bill after taking on full responsibility for someone else's building!

Another property we are hoping to view this week is being offered on a tenant internal repair and insurance but it says the tenant is required to pay the landlords building insurance. Is this common? I suppose in this case we'd pay the annual insurance premium but the LL would be responsible for the general maintenance of the exterior of the building?

 

[Down not out]

Hi,

£600 + VAT sounds right for a full survey. It's usually done once the other heads of terms are agreed.

Landlords should insist that the outgoing tenant puts the property in good repair but in practice, this rarely happens, especially if the business failed.


If the outgoing tenant made a financial settlement with the LL, it sometimes happens that the LL will pocket this money rather than do the repairs in the hope that the new tenant, being all excited about their new business venture will take on liability for those repairs.

If you do discover major repairs then you should ask for then to be disregarded in the lease so you're never held liable for them. You're absolutely right to be caucious.

Ref an internal repairing lease, it's common place to pay the LL building insurance costs. Most are never more than a few hundred pounds per annum.

 

[FirstClassVirtualOffice]

You need to let the head rule the heart on this one. If you get so as you really want it at the risk of ignoring the alarm bells, you will kick yourself in a couple of years when or if it goes horribly wrong and this LL isn't exactly exactly on the ball. We met a few LL when we were looking for new premises, and all were at the end of a phone, all keen to get tenants in their properties. In one instance though, the LL lived abroad and it was hard work, like yours, getting replies to what were simply yes or no questions that were basic questions on the lease, and one was about paying the insurance on the building. Couldn't get a yes or no from the agent. We decided that if it was hard work now, then it was always going to be hard work. With another agent, who was actually renting out one of their own buildings they owned in the town centre, we offered a years rent in cash up front including payment for one parking space, in return for a free second parking space. Never even got a reply, so again, we thought up yours, and moved on. We were so glad these people were rubbish at replying because we couldn't have ended up with a better place.

 

[MrsI]

Yes I know you're right. No matter how much I like the property I don't want to end up stuck with a rubbish LL for the next however many years.

We've got another viewing booked for tomorrow morning. It's not in the area we were originally focussing our search but it's on a busy street on the outskirts of town with lots of passing trade. And it's up with a different agent. Fingers crossed!

 

[MrsI]

We've viewed a great little property today. It's in the area we were hoping for, it's in a good state of repair and it was the current tenant who showed us around so we were able to find out the details of the current lease. He told us that he agreed a 3 year lease (but ended up staying for 5), he's paying £500 a year less than the advertised asking rent and is responsible for internal repair and insurance only. He also said the Landlord is great and he's never had any problems with him.

That all sounds promising so we are considering making an offer.

We're happy to pay the same as the current tenant (I.e £500 less than the asking price) but would like to request a rent free period. In the previous property we offered on (with the unresponsive LL!) a two month rent free period was agreed straight away.

Do you think we'd be pushing our luck to ask for 3 months? What is the norm with these things?

Thanks,
MrsI

 

[JamesSco]

We've viewed a great little property today. It's in the area we were hoping for, it's in a good state of repair and it was the current tenant who showed us around so we were able to find out the details of the current lease. He told us that he agreed a 3 year lease (but ended up staying for 5), he's paying £500 a year less than the advertised asking rent and is responsible for internal repair and insurance only. He also said the Landlord is great and he's never had any problems with him.

That all sounds promising so we are considering making an offer.

We're happy to pay the same as the current tenant (I.e £500 less than the asking price) but would like to request a rent free period. In the previous property we offered on (with the unresponsive LL!) a two month rent free period was agreed straight away.

Do you think we'd be pushing our luck to ask for 3 months? What is the norm with these things?

Thanks,
MrsI

The norm is around 1 month rent free period for every year on the lease. So if you go for and are happy to get a 3 year term on the lease then by all means ask for 3 months rent free.

 

[MrsI]

Thanks for your reply JamesSco.

Yes we were going to propose a 3 year term with a break clause at 18 months. So it wouldn't be too optimistic to ask for 3 months rent free then. I suppose if you don't ask you don't get!

 

[10032012]

Thanks for your reply JamesSco.

Yes we were going to propose a 3 year term with a break clause at 18 months. So it wouldn't be too optimistic to ask for 3 months rent free then. I suppose if you don't ask you don't get!

Have you heard back? How did you get on?

Don't let your heart rule your head. You should always be willing to negotiate a better deal.

 

[MrsI]

Thanks for your advice.

They agreed to the 3 year term, 18 month break clause and 1 month rent free. Not too bad I suppose?

 

[MyBusinessStory.co.uk]

Sorry I can't comment on the FRI bur make sure there is a break clause I the lease. The if the business is not looking like it will work you can walk away.

I decided not to have one of these in a lease a few years back to secure a prime location above the competition and it cost me dearly