Typical Rent Deposit for new start up wanting a retail space.

[Tommygun]

Hi.
What would be the expected deposit to be asked for a new business going into a premises on a new lease?

The reason I asked is for my budgets and business plan I have allowed equivalent 3 months rent on a lease of up to £20kpa.

But this week have been told I would need equivalent 9 months rent - the agent said it was because the property is a new build and a requirement of the investors on new businesses.

Is this what I can expect everywhere equivalent 9 months? - as that changes the cashflow!

I know its a bit of case-by-case, but would I be stupid to think I can negotiate 3 months deposit on somewhere?

 

[Happy Monday]

In my experience it depends largely on the landlord, and your negotiation skills. The first property I looked at wanted 6 months rent deposit and 3 months up front. It's a massive outlay when you're just starting up. The next property has settled on NO deposit, and 6 months rent free.

Good luck.

 

[Mark T Jones]

In my experience it depends largely on the landlord, and your negotiation skills. The first property I looked at wanted 6 months rent deposit and 3 months up front. It's a massive outlay when you're just starting up. The next property has settled on NO deposit, and 6 months rent free.

Good luck.

Yes. It also depends on the desirability of the property and of you as a tenant

 

[Stu Bailey]

it also depends upon the bargaining powers of the parties. If the property is ought after they may want more rent deposit. The ones I see are normally three months.

 

[Don Smith]

Three months is pretty much as "normal" as it gets. New businesses though will often be asked for six, nine or even twelve months deposit and three months in advance. If you're a Ltd they will almost certainly ask for a Personal Guarantee as well. Beyond that get negotiating but don't expect them to budge to far.

 

[Stu Bailey]

you dont give a rent deposit and a guarantee, thats the whole point of the rent deposit it replaces the need for a personal guarantee.

 

[Don Smith]

you dont give a rent deposit and a guarantee, thats the whole point of the rent deposit it replaces the need for a personal guarantee.

Actually that's incorrect. The PG is to cover the whole term of the lease should you go bust, it has nothing to do with deposits. Working on your theory a sole trader would never be asked for a deposit, wouldn't that be nice!

 

[Stu Bailey]

I beg to disagree. Rent deposits normally cover the period of the lease so I don't understand your line of thinking. Sole traders shouldn't have to give rent deposits because they are personally liable. The rent deposit is there to give the landlord time to relet the property and to cover the loss of rent. Most tenants want to be limited companies with the main reason being that they can limit their liabilities and can not be sued personally for any breaches of the lease, ie vacating the premises early.

Most landlords insist on personal guarantees to cover that risk but rather than giving a personal guarantee a tenant can offer a rent deposit. Most landlords landlords prefer that because its quick and easy for them to use the money when the tenant is in breach of the lease or vacate the premises. Otherwise if they rely on a PG they have to go to court to enforce the terms of the lease and the tenant may have no money to pay the landlord anyway. Rent deposits give landlords time and money to find a new tenant.
Are you getting confused with paying rent in advance? This is a double wammy for tenants. They have to pay a rent deposit and the rent in advance often a quarters rent. So in effect they have the equivalent of six months to pay at the start of the lease.

 

[Don Smith]

I beg to disagree. Rent deposits normally cover the period of the lease so I don't understand your line of thinking. Sole traders shouldn't have to give rent deposits because they are personally liable. The rent deposit is there to give the landlord time to relet the property and to cover the loss of rent. Most tenants want to be limited companies with the main reason being that they can limit their liabilities and can not be sued personally for any breaches of the lease, ie vacating the premises early.

Most landlords insist on personal guarantees to cover that risk but rather than giving a personal guarantee a tenant can offer a rent deposit. Most landlords landlords prefer that because its quick and easy for them to use the money when the tenant is in breach of the lease or vacate the premises. Otherwise if they rely on a PG they have to go to court to enforce the terms of the lease and the tenant may have no money to pay the landlord anyway. Rent deposits give landlords time and money to find a new tenant.
Are you getting confused with paying rent in advance? This is a double wammy for tenants. They have to pay a rent deposit and the rent in advance often a quarters rent. So in effect they have the equivalent of six months to pay at the start of the lease.

Not confused at all, thank you. No point arguing about it as you obviously don't understand commercial leases. It would be really nice if you were correct though and a three month deposit would remove my liabilities on a ten year lease which can easily be worth a minimum £300,000 to millions for the landlord.

Anyhow, if the op is any doubt I would hope they get everything clarified by their solicitor, rather than a internet forum.

 

[Stu Bailey]

Thanks for that. I am a commercial solicitor with 15 years of experience dealing with commercial leases so i know what I am talking about.

 

[Don Smith]

Thanks for that. I am a commercial solicitor with 15 years of experience dealing with commercial leases so i know what I am talking about.

If you say so. But you're still wrong.

 

[deniser]

Not confused at all, thank you. No point arguing about it as you obviously don't understand commercial leases. It would be really nice if you were correct though and a three month deposit would remove my liabilities on a ten year lease which can easily be worth a minimum £300,000 to millions for the landlord.

Anyhow, if the op is any doubt I would hope they get everything clarified by their solicitor, rather than a internet forum.

You would not normally be asked for a PG and a rent deposit. You would negotiate one or the other. Obviously the PG is far worse for the tenant than the deposit and should be avoided if at all possible, to the point of walking away from the property and finding a different property where the Landlord will agree to take a deposit instead.

Nevertheless, sometimes one might be willing to give one for commercial reasons. I have given one myself because the Landlord would not budge and the property I was after was the only one I wanted.

 

[Don Smith]

You would not normally be asked for a PG and a rent deposit. You would negotiate one or the other. Obviously the PG is far worse for the tenant than the deposit and should be avoided if at all possible, to the point of walking away from the property and finding a different property where the Landlord will agree to take a deposit instead.

Nevertheless, sometimes one might be willing to give one for commercial reasons. I have given one myself because the Landlord would not budge and the property I was after was the only one I wanted.

And would a deposit release you from the term of the lease? No it wouldn't.

I agree before 2008 PG's weren't common place, today they are though and in addition to deposits.

 

[Mark T Jones]

To the op. I would pretty much ignore the last 8 posts. The simple fact is that these are terms that needs to be negotiated. What others feel 'reasonable' or 'normal is irrelevant without context

As was previously stated, that context will include the location, desirability of the premises, plus the past experience of the landlord and other factors.

 

[IanG]

Negotiate it.

My new place is 3 mo down and 2 months grace so in terms of cashflow pretty similar to zero down and the month up front.

That said, it isn't new or particularly flash. Although being ready to move (30 days notice on the old place which I was 2/3 of the way through when I viewed) went massively in my favour as the only other prospective tenants I was competing against were all coming to end but wouldn't be handing over any actual capital for a few months. You technically should be in a similar bargaining position in terms of readiness to commit, so I'd be making that point.

 

[mhall]

Everything is negotiable and this is step one. You should be demanding free months rent, not offering deposits. It's a buyers market. Never trust an agent, they are only after commission and will screw you to the ground if you can. Never fall in love with the premises - fall in love with the business and never be afraid to walk away from premises if you are not getting what you want.

Always avoid personal guarantees - it is hard but just don't mention it and sometimes it will work. Only last year we signed a lease that was full of "personal guarantee" phrases, but as no one was mentioned (not even "Director") and nobody signed as an individual it doesn't mean a thing.

If the place is new then that is all the more reason for YOU to be careful, not the landlord - the premises have zero trading or footfall record and no credibility as a commercial premises - use that to your advantage..

If you must give a deposit, make sure you know exactly when you are getting it back and who gets the interest made on the amount.

 

[Chris Ashdown]

Lets clear this up

The three months deposit is really a sign of faith that the landlord is not being mucked up costing him money drawing up the lease and stopping advertising the unit

The PG is to cover the whole of the lease, so if you took a ten year lease at £10,000 pa and after 1 year you went bankrupt or walked out, you personally are still guaranteeing the remainder of the lease i.e.£90,000 plus Building insurance and any repairs etc

 

[Don Smith]

Lets clear this up

The three months deposit is really a sign of faith that the landlord is not being mucked up costing him money drawing up the lease and stopping advertising the unit

The PG is to cover the whole of the lease, so if you took a ten year lease at £10,000 pa and after 1 year you went bankrupt or walked out, you personally are still guaranteeing the remainder of the lease i.e.£90,000 plus Building insurance and any repairs etc

Thank you. That's exactly what a PG of a LTD or going in as a Sole trader will be commiting to these days. It's a biggie the op needs to be aware of, and a deposit doesn't negate the commitments for the remainder of the lease.

 

[billmccallum1957]

Have to agree and disagree with some of the responses.

There is no "one size fits all" solution and there is no "industry standard", its up to the landlord and tenant to come to an agreement, its usually agents and solicitors who muck it all up.

In the last two years we have agreed two leases, none have PG's attached, one was three months rent in payable in advance, the second was two months rent free and quarterly in advance (so only had to pay one months rent on signing the lease).

None required deposits in advance and none had premiums attached.

My advice is, decide what you need and work from that point - if possible, take the agents out of negotiation and deal with the owner directly.

 

[The Byre]

So, ignoring the fact that some members here have decided to throw their toys out of the pram -

Everything is negotiable and this is step one. You should be demanding free months rent, not offering deposits. It's a buyers market. Never trust an agent, they are only after commission and will screw you to the ground if you can. Never fall in love with the premises - fall in love with the business and never be afraid to walk away from premises if you are not getting what you want.

This!

With everybody going on-line for everything, a bricks-and-mortar shop is a very hard furrow to plough. Shops are standing empty. High Streets across the country and across Planet Earth are being returned to their original purpose of being where curiosity-shops selling bric-a-brac and artisans offer their services during the day and pimps, thieves, drug-dealers and alehouses ply their trade at night.

 

[Mark T Jones]

So, ignoring the fact that some members here have decided to throw their toys out of the pram -



This!

With everybody going on-line for everything, a bricks-and-mortar shop is a very hard furrow to plough. Shops are standing empty. High Streets across the country and across Planet Earth are being returned to their original purpose of being where curiosity-shops selling bric-a-brac and artisans offer their services during the day and pimps, thieves, drug-dealers and alehouses ply their trade at night.

I guess you haven't visited high streets near to me.

The point is that without context that advice is of no value. The op might know about the balance of supply and demand in their chosen location or they might need to do more research on other comparable properties which have recently changed hands. Simply relying on sweeping generalisations really isn't going to help

 

[Don Smith]

Have to agree and disagree with some of the responses.

There is no "one size fits all" solution and there is no "industry standard", its up to the landlord and tenant to come to an agreement, its usually agents and solicitors who muck it all up.

In the last two years we have agreed two leases, none have PG's attached, one was three months rent in payable in advance, the second was two months rent free and quarterly in advance (so only had to pay one months rent on signing the lease).

None required deposits in advance and none had premiums attached.

My advice is, decide what you need and work from that point - if possible, take the agents out of negotiation and deal with the owner directly.

What, I think, people are forgetting here is that it's the op's first B&M venture. He/she has no trading history and is therefore a very high risk tennent who, statistically, will go bust before a five year lease has expired. That'll no doubt be why they've already been asked for nine months deposit.

 

[deniser]

What, I think, people are forgetting here is that it's the op's first B&M venture. He/she has no trading history and is therefore a very high risk tennent who, statistically, will go bust before a five year lease has expired. That'll no doubt be why they've already been asked for nine months deposit.

Absolutely. It's not just to do with supply and demand - it's the risk attached to the tenant himself which is also a big factor.

 

[billmccallum1957]

What, I think, people are forgetting here is that it's the op's first B&M venture. He/she has no trading history and is therefore a very high risk tennent who, statistically, will go bust before a five year lease has expired. That'll no doubt be why they've already been asked for nine months deposit.

We started a new limited co. just over two years ago, no trading history, no PG and 3 months rent in advance (with 6 weeks rent free to fit out).

After 8 months we opened shop 2, with only 8 months trading history, no PG, 2 months rent free and 1 month in advance.

Both have a 2 year break clause, in case thing didn't work out.

There is no standard that needs to be met, its about what the landlord and tenant can agree.

 

[Don Smith]

We started a new limited co. just over two years ago, no trading history, no PG and 3 months rent in advance (with 6 weeks rent free to fit out).

After 8 months we opened shop 2, with only 8 months trading history, no PG, 2 months rent free and 1 month in advance.

Both have a 2 year break clause, in case thing didn't work out.

There is no standard that needs to be met, its about what the landlord and tenant can agree.

And............??

No one said there was a "standard', just what might be expected. Of course it's between what is agreed, no one said it wasn't. But, and as you get more experience, you'll notice your negotiating powers increase to the point where, if your successful, you'll be sought out to take on units, two or three years rent free or even more on a ten year contract with two or three breaks are easily achievable if you have a sought after brand.

Where you are trading from makes a hell of a difference as well eg the terms for a shop in the suburbs of Gateshead will be far different from Oxford Street in London.

The OP wanted to know what they might expect in the way of deposit for a new business. I gave a realistic reply, they have already been asked for nine months deposit so to suggest a month or two is "normal" obviously isn't the case.

Personally I've been through it all, from Ltd's with and without PG's/deposits to a sole trader trading from a shop with no lease or contract at all (admittedly that's unusual and not generally recommended, it worked for us and the landlord at the time though).

I wish you well with your fledgling business

 

[The Byre]

I guess you haven't visited high streets near to me.

Quite the contrary, Sir! I have often been to Scunthorpe!

 

[Stu Bailey]

As people have said its all about bargaining power and how desperate either party are to let the premises. The landlord of a successful shopping centre will have more stringent requirements than say a landlord of a run down parade of shops, or a one off shop in the middle of nowwhere.

Landlords are concerned that if the lease is granted to a limited company then if that company goes bust, the landlord will in a majority of cases not be able to sue for the outstanding rent or the costs of reletting the premises. The reason being is that in most instances the company has little money worth suing after.

So in response to that the Landlord will request a personal guarantee. Now all tenants should flatly refuse to give a personal guarantee because it makes them personally liable. Ie if their business fails and they cant afford to pay the rent, the landlord can sue them for the outstanding rent. Until he has found another tenant. And if you have no money to pay the debt, he can in the end force the sale of your assets such as your car or home to recover the outstanding debt.

But its not just the rent, for example if you have signed a full repairing lease you may have to repair the roof and that can costs hundreds and thousands of pounds. So if you cant pay it, you have given a personal guarantee then you are personally liable, the landlord can sue you for the costs of the repair and again your home is potentially at risk.

The key point though here is that the Landlord can only sue for his loss. He has to mitigate against his loss which means he has to remarket the property and take steps to find another tenant. So the personal guarantee may last the length of the lease but in all honesty it is unlikely to be the case because the landlord will want a tenant trading paying the rent and it will be a lot less stressful, time consuming and costly to keep suing the tenant for the non payment of rent. .

Which is why I always advise my clients who sign up to commercial leases never give a personal guarantee. So what do landlords say in response ok, but I want a rent deposit to cover my costs to remarket the premises to enable me to find a new tenant. Which is why rent deposits are normally between 3-6 months to cover the costs for the time it takes a landlord to find a new tenant. The ones I have dealt with in the last three years have been predominantly 3 months. Yes sometimes are larger but the majority of tenants who seek advice on this forum should only be required to give three months, but some instances the landlord will want more.

That's my experience of dealing with commercial leases for the last 15 years. I am not a conveyance who dabbles in commercial property work, I have been dealing with retail commercial leases for several years now. I would also add I have changed firms recently and I have previously posted under my old firm name of Thomas Guise and have posted on this forum for several years.

So people can have a go at me for saying I am wrong or giving wrong advice but that is my experience over the last few years.

So to Tommygun to answer your question my advice will be three months. No pg and by all means go for a rent free period to cover your shop fit costs (but you will still be required to pay the rent deposit, insurance and service charge if applicable) when the lease completes.

Best wishes Stuart Bailey

 

[Tommygun]

interesting to read through the replies.

To update, I took a swerve on the original property and their demands for 9 month deposit.

I've just starting talking with a different agent about another site, 3 month deposit - no PG (that's never going to be an option for me) and a couple months rent free. So works out a much better deal.

Solicitor will be brought in once general terms are agreed to check it all over.

 

[Don Smith]

interesting to read through the replies.

To update, I took a swerve on the original property and their demands for 9 month deposit.

I've just starting talking with a different agent about another site, 3 month deposit - no PG (that's never going to be an option for me) and a couple months rent free. So works out a much better deal.

Solicitor will be brought in once general terms are agreed to check it all over.

I take it you're a Ltd then? Just be aware that many of your suppliers will require a PG. However, as you'll be paying for most, if not all, of you initial stock proforma I'd recommend keeping this up rather than having accounts. This has a couple of advantages, firstly you'll be able negotiate a healthy discount and, secondly, when you hit a rough patch you're not tempted to dip into HMRC money to pay suppliers. Also if more banks start charging to hold your cash you want the least amount sat with them as possible.

 

[Tommygun]

Thanks, we already have suppliers in place without PG. and yes we are Ltd.

On another note with an FRI lease, would this also mean my responsibility for things like the structure of the building and roof? its a grade 2 listed building with 2 flats above the intended shop, I wouldn't want to get caught to be paying for the repair of a roof 2 floors up, or structural issues on a building Due to its age!
I assume this is where our survey will step in a and we only are responsible to maintain to the current condition?

 

[Don Smith]

You're solicitor will advise you on the FRI, yes they can include the roof but a decent solicitor should be able to negotiate for your shop only with a contribution to the roof. A good survey will also include photographs to show the condition when you took possesion. You will be required to return it to this condition when you vacate. Structural issues also come under the FRI. Basically think of the responsibilities under a FRI as the same as if you owned it, generally.

 

[mjpuds]

i waved goodbye to 5200 for deposit 5200 as a handshake ..then two weeks after moving in another 5200. och..

 

[Chris Ashdown]

Don't forget the landlord will insure the building in his name but its normal for them to then invoice you for the bill and also add vat. this is to ensure the insurance is in place in case you burn it down or some other catastrophe

Also the cost of fitting out a shop is considerable in many cases especially if its a new open shell

 

[JohnSmith34]

You could try building from scratch. I have a lot of experience in petrol stations. But it is very similar.

I would say that the average cost of building a petrol station from scratch would cost approximately £300,000. A big part of that includes the costs of the pumps, tanks and all of health and safety involved with that.

This means that it should be much cheaper for you to build a shop

 

[deniser]

And would a deposit release you from the term of the lease? No it wouldn't.

No but if you are trading as a company then your personal assets are not at risk.

 

[deniser]

I Just be aware that many of your suppliers will require a PG.

That depends on your credit rating or the way you deal with the first few proforma invoices.