Negotiating rent / Securing a deal?

[anth.payne]

Hi everyone, this is our first venture into occupying a retail space, and I'm after some advice on negotiating rent...

In general, it appears the majority of retail space is sitting empty for long periods of time, and when occupied - they dont stay long.

Advertised rent is in the region of £6,000 to £12,000 with one or two units as low as £3,000 (tucked out the way).

Where do I stand for negotiating a discount and deals? What is deemed acceptable discounts in the current climate?

Thanks, Anthony

 

[Highland Park]

I'm after some advice on negotiating rent

My advice is that your offer will only ever be negotiated upwards, never downwards.

It sounds like you are in a buyer's market.

 

[LicensedToTrade]

My advice is that your offer will only ever be negotiated upwards, never downwards.

It sounds like you are in a buyer's market.

To the OP, as Highland Park has said it really is a buyer's (or renters) market at the moment, nationwide. Be bold with your initial offer, undercut the lower end of the asking price significantly and work from there. Get three figures straight in your head: 1. Your dream price (a rental value that you would be delighted with, 2. An upper limit to which you are prepared to go to and 3. An acceptable value, this will fall somewhere inbetween one or two, if the landlord won't budge but comes near this price and you want the property then make the deal.

Remember that these values shouldn't just be educated guesses at what you deem to be acceptable. They should fit in with your projected sales and growth over the tenure of the lease. Make this decision in association with your business plan.

You should also be bold in asking for an initial rent free period. Most landlords are happy just to get the property filled to get some money coming in and in a good deal you can expect to get 3-6 months rent free. Ask for 12 months and let the landlord work you back from there. You should note however that many landlords will expect you to return the favour so if you want 6 months rent free it will likely be the latter 6 months of the rolling year, whilst you remain liable to pay for the first 6 months.

Most landlords will expect a deposit, the value of which varies wildly but is typically based on a multiplication of the monthly rent value eg. deposit = value of 2 months rent. As the saying goes, everything is negotiable.

If you can convince them that your money would serve both parties best if you were able to spend this money on securing the future of your business and as such would keep the property occupied then they might take your point.

Can I ask what condition the units are in? If they are new unit and you are the first occupant, what work will be required to turn it from a shell into a serviceable unit? Has the RCD consumer unit been installed? Has the unit been connected to mains water? etc. Who will be responsible for paying for these to be set up?

If it is an older building, what remedial work will be required and who will pay for it?

 

[anth.payne]

Thanks for the input...

The unit is in good serviceable condition, only about 45sq/m retail space + store room...

It is an older building with about 4m glass frontage, which is original (wood/glass)... I think all i'd need to do is a new floor, and a lick of paint to the exterior to freshen it up...

One other is tucked out the way, with no 'shopper' foot fall, and one other needs a hell of alot of work with alot of damp, but much bigger and next door to a competitor.

I'm debating how much less to offer, and what sort of rent free period. My wife done the first viewing without me, and the estate agent advised 1 months free rent, and a 15% discount - I personally think that isnt such a good deal, however, this was just an on the fly discussion - we havnt yet formally discussed terms.

 

[OptiRick]

In the current market you should be able to get 6 months at half price as a bare minimum.
Just imagine that it's their job to get you into their unit and they need to offer you an incentive.

As you say this is your first venture, get any lease looked at by a professional. We once rented a unit and five years later when we moved out the terms of the lease placed unreasonable expectations with regard to the condition in which we were expected to leave the unit.

We were supposed to repair all the faults with the unit, even those which were there when we took it on, essentially refurbish it despite it being tatty when we took it over. I read the lease myself before signing it and there was nothing to this effect, nothing in my native English anyway but the legal people have their own language.

"It's not dilapidation in the dictionary sense of the word" I recall one of them saying to me!

 

[kulture]

I agree with all the advice here. I would however add a few comments

First consider it from the landlord's point of view. A landlord wants a good tenant. One who pays on time, looks after the property, and will last the test of time. So a good professional approach, tough negotiator, and good business plan will all aid the impression.

Second, depending on your business, being next to a competitor can be a benefit. It brings more customers to your door. You may have to share these customers, but since you know about the competitor you must think you can do better anyway.

Third, seriously consider hiring a professional negotiator/commercial surveyor to negotiate the deal. He/she should bring in local knowledge, advise on the likely rent, point out nasty pitfalls in the offer.

Finally leave yourself some wriggle room. Negotiate a break clause. It gives you the opportunity to get out either to expand if you are doing well, or escape if you are not.

 

[urban33ltd]

I agree with the other post we have been going through some similar situations the past few months.

Remember one thing..you can always walk away and I have on several occasions even almost at the point of signing for it.

I would suggest the offer will depend on how long you are going to be in the unit to, so if your signing for a five year lease get a better rent free period etc.

Also don't forget business rates, on the values you mentioned there is a current holiday period if your business rates are below £6k a year until September.

Don't rush into anything, make sure you have look at the worst things that can happen and that you can cover this to!

Stu

 

[anth.payne]

I would suggest the offer will depend on how long you are going to be in the unit to, so if your signing for a five year lease get a better rent free period etc.

By the looks of it - a 12mnth initial lease is what is being offered...?

Also don't forget business rates, on the values you mentioned there is a current holiday period if your business rates are below £6k a year until September.

What's this Holiday period? I am aware of a 50% reduction for small businesses...

 

[urban33ltd]

If it is a 12month lease you won't get much if any rent free period, you be best just to get a good monthly deal on the rent.

The government put in place free rates if paying under £6k a year, this lasts until September this year. The agent should know about this.

Hope that helps

Stu

 

[anth.payne]

Thanks Stu

With regards to Lease's - it seem 12month initial contract is the norm in these parts. We are a very small town, where it seems new businesses are struggling to start and run. Maybes this is a reflection on the current market in the town?

It seems less and less are using estate agents and advertising privately.

It seems the biggest decision is the trade off between a longer contract and better deals to improve cash flow, and a shorter contract with less attractive deals, which won be so good on cash flow, but will leave me with better options for exiting if the need arises!

 

[kulture]

Go for a longer lease with a 12 month break clause.

 

[anth.payne]

Thanks - will have a think about what is going to be a good rent in terms of cash flow, then discuss it in more detail with the agent.

Is it essential to employ the services of a Solicitor?

I am comfortable with the estate agent we are working with, and have dealt with them before (albeit not commercially)... should I be OK drawing up contracts direct with the estate agent?

We are really trying to reduce costs in start-up as much as possible...

 

[kulture]

Thanks - will have a think about what is going to be a good rent in terms of cash flow, then discuss it in more detail with the agent.

Is it essential to employ the services of a Solicitor?

YES. I cannot emphisise this enough. USE A COMMERCIAL SOLICITOR.

I am comfortable with the estate agent we are working with, and have dealt with them before (albeit not commercially)... should I be OK drawing up contracts direct with the estate agent?

I don't care how much you like them, they are the landlord's AGENTS. Their job is to get the best possible deal for the Landlord.

We are really trying to reduce costs in start-up as much as possible...

Not using a clued-up up solicitor can cost you 10 of thousands of pounds in the long term.

 

[anth.payne]

point taken :redface:

 

[LicensedToTrade]

I can't agree with Kulture more on the importance of using a solicitor who either specialises in commercial property law or at least has significant experience in it.

If you mended your own clothes to save some money and messed it up, the cost would be minimal. If you decided to do your own dental work and messed it up the cost to rectify it would be reasonably expensive but not eh end of the world. But...If you try your hand at interpreting a legal document such as a lease and you get it wrong then you might find it turns out to be the most expensive DIY job you have ever done. (Broken toothed smile)

 

[IndiCafe]

It kinda frustrates me that the rates assessors haven't cottoned onto the fact that achievable rents are lower now. No wonder landlords expect silly rents when the assessors' valuations are 20% over market value, even ones that were updated this year.

 

[Stuart Bailey]

speak to a local commercial surveyor for their thoughts