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Renting Premises – Ways to Minimise Risk

Finding the perfect premises can be paramount to the success of the business. Owners take great care in selecting the premises based on price, location, size and facilities.  In this economic climate it is sensible to also take great care in protecting yourself and your business from unbudgeted costs and entering into a contract that isn’t right for you in the long-term.

The most sensible thing to do when renting business premises is to ensure that you have a solicitor in place as early as possible to make certain that you are not signing a contract that is unsuitable or overly costly.

You will have financial commitments when renting premises and these can include:

  • A premium to purchase the lease
  • Rental costs
  • Service Charges
  • Utility bills
  • Maintenance and repair bills
  • A deposit – between three to six months’ rent
  • Stamp duty land tax
  • Business rates

Service charges are generally payable on larger premises that are part of a shopping centre, row of shops or simply part of a building which is occupied by other tenants. It is important to find out how much the service charge will be as sometimes it is more than the rent payments.  You can also ask for a cap and that way your service charge will not be more than a set figure per year.

Heads of Terms

Your landlord’s agent will provide you with a proposed set of terms; these are called the Heads of Terms. It is wise to ask your solicitor to review these terms before agreeing to any of them.

Many Heads of Terms will typically cover the following:

  • Amount of rent
  • Length of lease
  • Repair and decoration obligations
  • Guarantee/rent deposit
  • Ability to assign/transfer the lease
  • Details of who insures and pays
  • Break clauses
  • Automatic right to lease renewal
  • Proposed works prior to lease commencement

If you have a short-term lease of between one and two years then you are generally not responsible for repair rights. When you opt for longer lease you are liable for repairs.  Minimise your personal liability by cataloguing photographic evidence of the state of the premises before you move in and ensure that as part of your terms you are not required to put the property into any better state or condition as to when you took it on.

Ways to minimise your personal liability

There are ways in which you can minimise risk to protect your personal assets when renting premises, such as by setting up a company to minimise your liability. This means that the company will be liable and not you personally.

Your landlord may ask you to guarantee the rent, making you personally liable. However, you can offer a rent deposit of around three months’ rent instead. It is an expensive option as you have to pay out a large sum of money up-front, but it does ensure that you are not personally liable if things don’t work out.

Make sure that your break clause, which allows you to end your lease early, states that it is subject to paying the rent, giving vacant possession and nothing more.

Renewal of Leases

It is prudent to ensure that in your Heads of Terms the lease has the protection of the Landlord and Tenant Act 1954.

If your lease is legally protected then when it comes to an end it will automatically continue past the end date until either you or the landlord terminates the lease.

Keep a note of when your lease is up for renewal and open negotiations with your landlord as early as six months ahead of the renewal date. This will help to minimise uncertainty and unbudgeted costs.

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