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Putting an Offer In

Discussion in 'General Business Forum' started by locutus, Sep 4, 2020.

  1. locutus

    locutus UKBF Regular Free Member

    167 4
    To continue my previous thread about town centre rents. I contact the agent that is dealing with the shop with £60,000 in rent - something I could not afford by any means. Realistically, I think the place is worth around £25,000-£30,000 a year. My business model would be comfortable around the £12,000 a year mark, so half of what I think the realistic price is.

    The agent said the previous tenant was paying that (it was William Hill, so of course they can afford to pay that).

    I said to the agent that "I will not be in a position to pay that, now, or ever. If their client would prefer to have an existing and established business in there, and willing to take a much lower rent, then I would be interested in taking this further. But if your client is not willing to consider substantially less in rent, then I would say we would not be able to come to an agreement, and would not be worth continuing the conversation. "

    They came back to me, and said "What are you thinking of offering?".

    How do I proceed with the next stage? I've never done anything like this before. Do I write an overview of concessions that I would like?

    Thank you.
     
    Posted: Sep 4, 2020 By: locutus Member since: Jun 12, 2015
    #1
  2. PhantomWeb

    PhantomWeb UKBF Newcomer Free Member

    6 1
    In this situation, just be honest with what you can afford and go from there. They may take the opportunity to just get it let out with COVID or they may say no. No point wasting each other’s time if you are never going to be able to meet on cost.
     
    Posted: Sep 4, 2020 By: PhantomWeb Member since: Sep 4, 2020
    #2
  3. locutus

    locutus UKBF Regular Free Member

    167 4
    Thanks @PhantomWeb - appreciated, good advice. Following that, I put an offer in, a fraction of what they are asking for. It was what I could afford, and gave a business plan of what I would do to the space. Hopefully, they will tell this is a very serious, and well thought out offer, despite the low offer!

    I won't hold my breath though, as I'm asking for a lot.

    But the more I think about that space, the more I think it would be great for the business. Who knows!
     
    Posted: Sep 5, 2020 By: locutus Member since: Jun 12, 2015
    #3
  4. MikeJ

    MikeJ UKBF Big Shot Free Member

    5,837 1,721
    GET A SOLICITOR

    GET A BREAK CLAUSE.
     
    Posted: Sep 6, 2020 By: MikeJ Member since: Jan 15, 2008
    #4
  5. locutus

    locutus UKBF Regular Free Member

    167 4
    No need to use caps, but yes, I will get a solicitor involved with the lease, if they decide to accept my offer, if. Big if.
     
    Posted: Sep 6, 2020 By: locutus Member since: Jun 12, 2015
    #5
  6. Aniela

    Aniela UKBF Regular Free Member

    329 41
    If William Hill were paying £60,000 a year, then that amount is roughly a realistic price for them to be asking. Just because a business leaves the premises and it's currently empty, it does not mean the realistic price is halved. That includes if it's been empty for 6 months.

    The issue you have is that the main 'value' of a commercial property like this is based on the tenant (length/size of business etc) along with rental price.

    If they go from accepting £60,000 a year (from a big company) to £12,000 a year (from a little company) they're vastly devaluing the property and would in nearly all cases, be better off not renting it to you; unfortunately. It's extremely likely they would be worse off renting to you, than keeping it empty.

    It's just a bad side-effect of how it all works and why you see a lot of shops empty for long periods of time.
     
    Posted: Sep 7, 2020 By: Aniela Member since: Mar 28, 2020
    #6
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  7. locutus

    locutus UKBF Regular Free Member

    167 4
    Edit: I just heard back from the agent, they said no, not surprisingly.

    I agree. Some people are willing to just let their property sit for a while if they don't get their price.

    I know someone who has a small residential property portfolio, he rents houses rather than flats, and I know sometimes he will leave the place empty for a couple of years until he gets the right person. He doesn't need the money, so can afford to sit on for a couple of years.

    There is a person on YouTube who talks about commercial real estate in New York, and he recently posted a video explaining why landlords are willing to let their buildings go empty for so long:
     
    Last edited: Sep 7, 2020
    Posted: Sep 7, 2020 By: locutus Member since: Jun 12, 2015
    #7
  8. Maxwell83

    Maxwell83 UKBF Regular Free Member

    708 185
    The result was not surprising, but I commend you for trying - if you don't ask, you don't get as they say.

    If they rented to you for 1/5 of what the previous tenant paid, it would take them 5 years to get the rent that the previous tenant paid in 1 year. That would be worse than having the property sit empty for 2+ years and having a tenant come in after that at say £55k p/a for a couple of years.

    There is also the implications to value by accepting such a low rent; Rent review comparables and also if they ever wanted to mortgage/re-mortgage the building.
     
    Posted: Sep 7, 2020 By: Maxwell83 Member since: Aug 4, 2012
    #8
  9. Chris Ashdown

    Chris Ashdown UKBF Legend Free Member

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    The shop is a asset to the owner and based upon the rent value times a set period. If they drop the rent a large amount then they are having to readjust their assets value, which combined with other shops they own could cause them greater problems with their borrowing powers
     
    Posted: Sep 7, 2020 By: Chris Ashdown Member since: Dec 7, 2003
    #9
  10. locutus

    locutus UKBF Regular Free Member

    167 4
    Sure, but an empty shop brings in no money, and in fact costs them money. They have to pay around £16k a year in rates.

    But I suppose that brings up another point, if the rent is less than the rates, then there isn't much incentive to take the offer up.
     
    Posted: Sep 7, 2020 By: locutus Member since: Jun 12, 2015
    #10
  11. Maxwell83

    Maxwell83 UKBF Regular Free Member

    708 185
    Having a high value asset which is bringing no income temporarily can be better than devaluing the same asset, to collect a relatively paltry income.

    Long term thinking v short term thinking.
     
    Posted: Sep 7, 2020 By: Maxwell83 Member since: Aug 4, 2012
    #11
  12. Aniela

    Aniela UKBF Regular Free Member

    329 41
    It's just a strange way of how it works but having a small business in there that is very likely to leave within 12 months, costs them more than leaving it empty.

    That's even if you paid just enough to cover the rates.

    There is a devaluation of the property for starters. Which could affect raising further funds for other projects. Although you would think a tenant adds more value than no tenant, it doesn't as empty vacancies are built into the business model.

    Massive opportunity cost to the landlord. Large Company LTD comes along looking for places in the area, offering 4-5x what you pay, per year. That shop is now off limits for a period of time. Landlord has been unable to make 5 years revenue in the same 12 month period, because they've been nice and let it rent out for cheap.

    Average rental price lowered. If you start accepting lower rents, that starts to become accepted as the 'average rental rate' and going forward could lose them tens if not hundreds of thousands of pounds over the decades.

    Bit of a hard sell to a new large company coming into the space. So the last tenant paid £12,000 a year but you want to charge us £50,000 a year?
     
    Posted: Sep 7, 2020 By: Aniela Member since: Mar 28, 2020
    #12
  13. Alison Moore

    Alison Moore UKBF Enthusiast Full Member

    535 94
    I guess you could offer a lower amount for a short term tenancy, say 6 or 12 months, if your business model allows you to move premises without massive upheaval. They'll probably say no again, but if they're only committing to a short term they might prefer to get someone in there rather than leave it empty. It's tricky as what they want to charge in rent, and what your average independent company can afford is often vastly different.
     
    Posted: Sep 8, 2020 By: Alison Moore Member since: Aug 4, 2016
    #13
  14. Paul Norman

    Paul Norman UKBF Ace Free Member

    2,780 865
    Respect for asking. You never know.

    I am not surprised about their response, but if you had rocked up here saying they accepted it we would all have been lifting our hats in respect!
     
    Posted: Sep 8, 2020 By: Paul Norman Member since: Apr 8, 2010
    #14
  15. locutus

    locutus UKBF Regular Free Member

    167 4
    To give people an update. I contacted the agents on Wednesday to reaffirm my interest in the space. I didn't hear anything back. So today, I phoned the agent dealing with this.

    His response was a total bs answer as I expected. He said he put the offer to the client, the client said no (no surprise), but then said he didn't think my offer was a serious offer... It was seriously low, at least!

    I said of course it was a serious offer, I did a business plan, showing you what I want to, I told you that I wasn't going to offer anything near the rent your client wants.

    The agent said that they are in "serious discussions" with other people regarding the space, around the 40-50k mark. I said to him, no disrespect here, I gave you a serious offer, I'm willing to negotiate if your client is willing to negotiate. I also said, they're talking, I'm offering, I'm ready to proceed with this space.

    He just said that now he knows I'm serious, he will speak to his client 'again', but will keep me informed if the current talks don't go anywhere... I won't hold my breath.

    I just repeated this is a serious offer, and thanked him.
     
    Posted: Sep 14, 2020 at 1:26 PM By: locutus Member since: Jun 12, 2015
    #15
  16. Maxwell83

    Maxwell83 UKBF Regular Free Member

    708 185
    What did he mean by "serious"? Did he think that even if the landlord agreed to £12k, you still might not want it?

    The seriousness is largely irrelevant if the landlord won't take less than £40k, and you won't pay more than £12k mind.
     
    Posted: Sep 14, 2020 at 1:43 PM By: Maxwell83 Member since: Aug 4, 2012
    #16
  17. locutus

    locutus UKBF Regular Free Member

    167 4
    No idea, what he meant by serious. I told him at the very start when I offered the £12k, that it was deadly serious offer.

    But I'm not going to waste too much more time on this, I understand my offer was low, but I wanted to come across that I wasn't tyre kicking, and really wanted that space. Maybe he thought I was tyre kicking, and use them to play off against my current landlord.

    I said in my previous e-mail to him, we have been at our current location for 20 years, we need a space that can last us another 10-20 years!

    It's a shame, as that space is perfect for my needs. I know if my business moved there, it would be a success.
     
    Posted: Sep 14, 2020 at 1:51 PM By: locutus Member since: Jun 12, 2015
    #17
  18. Darren_Ssc

    Darren_Ssc UKBF Ace Free Member

    1,242 382
    When I was looking for new office space 3 months ago there wasn't much on the market. I mentioned to a local associate and within a few days he had a list of 4 that were going to become available because he knows what's going on locally. As it happened, I found my ideal place on gumtree but the 4 he came up with were all contenders.

    In short, ask around because not every available option will be advertised.
     
    Posted: Sep 14, 2020 at 2:51 PM By: Darren_Ssc Member since: Mar 1, 2019
    #18
  19. clould

    clould UKBF Newcomer Free Member

    3 0
    I can see why the agent isn't biting your hand off tbh
     
    Posted: Sep 14, 2020 at 9:08 PM By: clould Member since: Dec 22, 2018
    #19
  20. Socio South West

    Socio South West UKBF Enthusiast Free Member

    987 254
    @locutus Some inside information... A friend of mine rents a shop unit to William Hill.

    They approached her recently and told her basically that she could accept 30% of the rent that was on the lease agreement... or nothing at all.... with about 2 years of the lease to run.

    Like everyone else on the High Street, they are feeling the pinch - although already well established in the online stakes unlike many.
     
    Posted: Sep 15, 2020 at 7:02 AM By: Socio South West Member since: Mar 24, 2013
    #20