Renting a commercial space in London is quite complicated and the rules of the game are not the same as in other countries. Finding offices, a store, a restaurant can feel like an obstacle course.
Finding properties isn’t easy! Unlike the residential market, the commercial property market is hidden. The estate agents do not have a storefront and most of the properties are not visible on the internet. There are no search engines or they are very rudimentary, cover a fraction of the market and are not kept up to date. In addition, the supply is relatively low and the demand high. It is therefore highly recommended that, to put the odds in your favour, you go through a specialized property hunter. This will save you a lot of time, energy and grey hair!
Once a property has been identified, you have to show your credentials and convince the owner that you are a quality tenant with guarantees. Therefore it is necessary to prepare your application well. Among other things, you will have to present a business plan, bank guarantees and “sell” your project to the landlord. A powerful international chain of stores will obviously have less trouble convincing a landlord than a young entrepreneur who is launching his brand. Nevertheless, an owner will also be mindful of the type of business that will occupy the premises; in the case of retail, a renowned brand or one that fits well with the property can enhance his premises. Yet again, seek advice!
Then comes the negotiation which is a difficult exercise! The financial aspect is inseparable from the conditions included in the lease. In the UK, the legal framework is very open and offers little protection for tenants.
Nevertheless, some protection can be found if you can get the lease under the Landlord & Tenant Act 1954. Security of tenure means the landlord won’t be able to oppose the renewal of your lease. You will then have the right to renew your lease when it expires and the owner will not be able to oppose it.
It is also difficult to estimate whether the rents and conditions on offer are in line with the current local market. A partner like French Touch Properties can advise you. You can also use a surveyor valuer who will give you an estimate based on similar transactions carried out in the same area.
Several criteria must also be taken into account: is this a new lease, a current lease transfer or lease re-assignment or a sub-lease? How long is the lease? Is the lease inside or outside the “Landlord and Tenant Act 1954”? And above all: is there a premium to pay in addition to the rent?
What is a premium ?
It is a somewhat vague notion. Historically, this was an up-front payment akin to an advance rent in return for the rent being reduced. Today, premium is in fact often only a right to lease. This is the price that the current tenant of a property asks from you to release the lease to you. This payment can include the existing business (in the case of a restaurant for example), equipment or nothing at all. It is the law of supply and demand! Note that the premium can normally only be requested in the case of a lease transfer and will therefore be paid to the tenant who is leaving and not to the landlord. However, it may happen that landlords of well-located premises ask for significant premiums at the start of a new lease. It is an abuse but as long as there is demand, they will profit from it. Welcome to the realm of liberalism where landlords have all the rights!
In addition to the rent and the premium, you will have to pay the business rates or local taxes, the annual amount of which is around half of the annual rent. Finally, if you sign a new lease, you will be subject to the purchase tax called the stamp duty (SDLT), calculated on the amount of the rent over the entire period covered by the lease.
You will need to hire the services of a solicitor (lawyer) who will advise you on the legal aspects of the lease and who will conduct the transaction for you. In the UK, the solicitors hired by both parties work together to bring the deal to a close.
The problem is that a solicitor will tell you what is legal and what is not, and will explain the content and commitments of the lease. He will not be able to advise you in the negotiation. Moreover, solicitors only intervene after you have negotiated and reached an agreement, i.e. once the offer has been accepted when it’s too late! This is why, once again, it is important to be accompanied by a professional.
There are, in fact, many points to consider when preparing to sign a lease. All these conditions are negotiable when it comes to a new lease but they have to be accepted as they are in the case of an existing lease which is being transferred to you.
Here is a non-exhaustive list of questions to consider before signing a lease:
- Is there a break clause? How to exercise it?
- Does the lease fit into the “Landlord & Tenant Act 1954”? If not, am I prepared to take the risk of having to move at the end of the term?
- What are my duties and obligations in terms of maintenance of the premises and the building?
- Will I be required to repair any potential pre-existing faults?
- Will there be “rent reviews”? How often? (Usually every 5 years) What method will be used to reassess the rent on each review date ? How does it work in general? What is the procedure? What is my recourse in case of disagreement? (Note: rents are unfortunately never lowered)
- Does the landlord insure the building? What is the cost of my participation in this insurance? What does it cover? What additional insurance policies should I take out?
- Is there a security deposit to pay and is it negotiable?
- What are my ways out?
- What happens if I have late rent payments or if I can no longer pay the rent? What are my options in this case?
There are obviously other important points to consider, subtleties and pitfalls but we cannot cover everything within the scope of this article.
The legal framework is not very protective of tenants in the UK and it is therefore essential to understand what you are committing to before signing the lease because the consequences can potentially be serious later. It is important to negotiate the best possible deal from the start even if landlords are often in a position of strength … especially in the most sought after areas of the capital.
London is a wonderful city, bustling 24/7. Opening an office, a shop or a restaurant in London is a fantastic experience. Finding premises is part of that. Don’t let this adventure be ruined and seek help! That’s what we are here for, at your service. We are looking forward to seeing you soon.
French Touch Properties will guide you in your Business Property research study and in the search for your premises: offices, restaurants, shop, etc.