12 Common Mistakes To Avoid When You Rent Commercial Property
Renting commercial property can be a complicated business
. It is not unusual for commercial agreements and leases to have in excess of 50 pages of detailed conditions that will impact on you financially. In addition to this, new legislation might have come into force that you are unaware of - complicating things further by imposing more requirements on you that aren't actually written into the lease. Listed here are 12 things you should understand before you rent commercial property.
1. If my place is unusable due to fire damage, I can stop paying the rent and look for somewhere else.
If your premises are badly damaged, or even completely ruined, you will have the difficulties of looking for another premises to trade from. But what about the old premises? The law says that the lease continues and you must carry on paying the rent until the end of the lease.
2. I do not need to worry about insuring the property - that is the landlord's problem.
The lease will deal with who is responsible for the insurance, including what is covered by the policy. What is covered by the policy requires careful consideration and in certain instances you may need to take out your own cover as well. It is vital that you ensure that all eventualities are covered.
3. If I am renting commercial premises, there is no need to carry out searches against the property.
Landlords offer no guarantee as to whether the premises will be suitable for your requirements. It is important that you make all relevant searches and enquiries in relation to the premises prior to the commencement of the lease. Once you have signed up to the lease you will be liable for the rent. Consequently you simply cannot stop paying rent if something arises that affects the suitability of the premises for your business. Searches can reveal issues such as:
- That the Local Authority are planning to introduce a pedestrian area in the street on which your premises are situated
- That the land may be common land or registered as a village or town green. This will prevent any planned development or construction taking place.
- The planning history relating to the premises. Many tenants assume that planning permission is the landlord's problem, however breaches of planning control can be enforced for up to 10 years after the breach occurred. It is important to check that all planning permissions have been complied with.
- If the property carries an obligation to contribute to the cost of repairing the chancel of the local parish church. This will almost certainly be responsibility of the tenant.
4. I am renting property to use as a workshop. The lease allows me to use the premises for any purpose - I assume this is advantageous to me.
This is not always the case. The use to which the premises can be put may have the effect of increasing the amount of rent payable when the landlord comes to review the rent in the future. The broader the use to which the premises can be put, the more valuable the premises.
5. I am renting premises for use as a butcher's shop. The lease permits this use but no other. I assume this is not a problem for me.
Whilst it is fine for your business purposes, the restriction may cause problems in the future. For example, if your business is not a success and you need to transfer the lease, then any person to whom you assign the lease would also have to use it as a butcher's shop. Consequently it may prove difficult to find a suitable tenant.
6. I am not registered for VAT and the landlord has insisted on adding VAT to the rent I agreed.
Whether the landlord can do this will depend on the exact terms of the lease. However this matter should be clarified when the lease is initially negotiated.
7. My lease gives me a right to park 5 cars in designated parts of the communal car park. The new landlord claims they are not bound by these rights and has reduced the number of spaces allocated to me.
Unfortunately seemingly simple matters like car parking are very complicated from a legal perspective and are often not properly dealt with by the landlord in the lease. Subsequently, the new landlord might not be tied by these conditions.
8. My landlord has stated that there will be car parking at the premises.
Not necessarily. The lease will need to be checked to establish whether or not there is an allocated parking space or spaces or whether there is only a right to park on a 'first come first served basis' in a communal car park.
9. I plan to rent the premises through a limited company. If this company becomes insolvent, I can walk away from the property and the lease.
Not necessarily. It is likely that the landlord will try to obtain personal guarantees from the directors of the company. Careful consideration should be given to the terms of any personal guarantees provided. For example, the tenant should aim to include a term enabling any guarantee to be released on assignment.
10. The success of my business will not affect the rent which I have to pay.
It might! It all depends upon the terms of the lease. The landlord's ability to change or 'review' the rent is a very important part of the lease. It requires careful consideration when the lease is being drafted.
11. I do not need to be concerned about Asbestos Regulations.
Under the Control of Asbestos Regulations all commercial premises must have a report detailing the presence of asbestos at the premises. This report must be updated at least annually. As a tenant, the lease may force you to fulfil these requirements, which can be expensive. It is important that this matter is covered in the lease negotiations and prior to the lease being granted so as to remove any liability for the tenant in complying with the Control of Asbestos Regulations.
12. I do not need to be concerned about Fire Regulations.
Under the Regulatory Reform (Fire Safety) Order specific rules for the preparation and updating of a risk assessment and fire precautions will attach to both the landlord and the tenant., It is essential that both parties liaise to ensure they not only know and apply the Regulations correctly but dovetail their activities to prevent loss or damage occurring, A criminal prosecution is likely to follow any failure to comply as these rules are for the protection of your employees and the general public. An experienced commercial property solicitor can advise you on the appropriate searches and enquiries that should be made relating to the premises.
When entering into a commercial lease, make sure that you instruct a solicitor experienced in dealing with commercial leases who can interpret and negotiate the terms for you before agreeing a lease. Ideally this should be prior to the communication of the Heads of Terms which record your agreement with the landlord. Failure to do so can prove expensive
by: Tim Bishop
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