Business Property Lease Issue

Business Property Lease Issue

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red_slr

Original Poster:

17,122 posts

188 months

Wednesday 4th March 2015
quotequote all
Very long story as short as possible sorry!

I purchased 50% of a company in 2007. As part of the "hand over period" the company paid a lease to the old owners (my in laws) for a period of 3 years.

In 2010 I purchased the remaining 50% of the company. Old owners retired. Part of the deal was the lease for the property that the business resides in was to continue.

Lease was at market rate for a period of 5 years starting mid 2010.

When we set up the agreement we agreed terms verbally over the course of a few meetings, after all it was family (I know I know).

The basis of the agreement was set out in a document, the terms which were some minor things like they could store property on site - just some minor things - they have exercised these options for info. The payment terms etc were detailed. Basically all nice as pie we were family there were no issues.

One other clause was at the end of the 5 years we had the option to buy the property at market value rather than "renew" the "lease". Again its in the document which set out the "terms".

It was discussed and I made it clear that the business would want to buy after 5 years as we wanted to build the business at this location for the long term. They were happy and it was included in the document.

After 3 years we wanted to make some changes to the building as we were growing and we were starting to plan for the long term - they granted permission to carry out the work. A reasonable sum of money was spent.

Around the 4 year mark I started to discuss the end of the agreement was approaching and we would need to sit down to discuss the purchase.

I was surprised that they were not really willing to sell and they wanted us to continue renting it. Eyebrows were raised and I had further discussions with them over a couple of months to the point where they agreed to a meeting with the accountant to discuss.

A couple of months later there was a falling out between family and words were had (separate issue).

In the mean time I have obtained a valuation on the property and had 2 further discussions with them.

They are now saying due to the falling out they are not willing to sell.

I get the feeling they already have another tenant lined up.

I have known these people for 20 years and I really did not expect this. I don't really know what my options are. I would guess my options are limited.

Can anyone offer some advice on what would be a reasonable course of action?

Sorry for the waffle!

Chrisgr31

13,440 posts

254 months

Wednesday 4th March 2015
quotequote all
You need to speak to either a commercial property surveyor or to a lawyer. The important things will be to ascertain whether the lease is protected by the Landlord and Tenant Act 1954, how long it is for, what breaks there are etc. If there is no written lease it will get more interesting. Its not my field so I am not going to offer any comment on it. Where in the country are you?




surveyor

17,768 posts

183 months

Wednesday 4th March 2015
quotequote all
Them storing possessions could be key. Do they have a separate room? Do they have their own keys....

What you need to establish initially is whether you have a tenancy or a license.

I'm pretty confident from what you say that a tenancy would not be excluded from the Security of tenure provisions, which means that you would be able to ask the court to set a renewal on identical terms at market rent.

If it's a license then it's less good news.

If you need to speak to a solicitor make it a specialist landlord and tenant one not a high street chap....

red_slr

Original Poster:

17,122 posts

188 months

Wednesday 4th March 2015
quotequote all
Its a small store room. Just some junk items that were kept after a house move - old table and chairs, some old house stuff. Its not kept locked. It was just included in there to help them really. There was also an option to store a vehicle - but they never did.

surveyor

17,768 posts

183 months

Wednesday 4th March 2015
quotequote all
What about access to the building? did they keep keys or do you hold them and they only access when your open?

red_slr

Original Poster:

17,122 posts

188 months

Wednesday 4th March 2015
quotequote all
The main access is a roller shutter - I have changed the locks in this some time ago so they can only get in when we are open. I did this because stock was going missing.

What impact does it have?

Chrisgr31

13,440 posts

254 months

Wednesday 4th March 2015
quotequote all
Surveyors thought processes are same as mine, however its not a field I have done for about 10 years!

Piglet

6,250 posts

254 months

Wednesday 4th March 2015
quotequote all

I'd suspect, given what you say that it is a lease (rather than a licence) and that as it has not been excluded (it appears) from the security of tenure provisions of the landlord and tenant act that you have the ability to require your landlord to renew the lease, subject to your landlord not being able to demonstrate one of the grounds that would enable them to avoid (ie redevelopment, occupation of the premises for their own purposes).

However, this doesn't deal with your wish to purchase the property, if there is written documentation that purports to give you the ability to buy the property then you need to get that documentation checked by a solicitor as soon as you can and you need to give them all the rest of the information that you have at the same time. You will need to comply with any provisions set out within that "option" if it is enforceable.

Assuming that there is a written document, who's name was the lease granted in? Was it the company name?



Edited by Piglet on Wednesday 4th March 22:09

surveyor

17,768 posts

183 months

Wednesday 4th March 2015
quotequote all
Dealing with straightforward lease situation.

If you 'share' with the LL it can be argued that you have a license and not a lease. No protection on a license. From what you say I think you have a Lease (these can be informal).

As such where a property has been occupied for more than 12 months by a business will have protection from the Landlord and Tenant act (provided not contracted out, which I doubt you will have). First things you need to know is LL has to give between 6 and 12 months to get you out - and can only do so on certain grounds.

As Piglet says you need to get the contract read by a legal beagle on your option to purchase, but at least your unlikely to get the locks changed on you tomorrow.

red_slr

Original Poster:

17,122 posts

188 months

Thursday 5th March 2015
quotequote all
There is no "lease document" just a single sheet A4 detailing the main points. Its not signed. It was written by me - just to document everything that was said during the meetings to set this all up. They are very much old school and hate anything in writing. I now know why.

surveyor

17,768 posts

183 months

Thursday 5th March 2015
quotequote all
I suspect that your opportunity to purchase is gone.

Focus on the Lease issue.

LL has a few ways to get possession back. Main ones are redevelopment, own occupation. Having someone else to put in is not one of them....

If they want you out they must a Section 25 Notice. You can object to this and request a new lease on similar terms at market rent. The terms will be implied if they are not written down currently. Expiry notice must be between 6 and 12 months distant.

If you want to move things along you can serve a Section 26 Notice renewal request. LL can object on same grounds as Sec 25.. Similar notice period. Focuses bad behaving landlords heads.

If you want to move you have to give 3 months notice.

If you can't agree a renewal court will set one at Market Rent. Cost in Surveyors and Legals's though so best avoided if possible.

Jobbo

12,960 posts

263 months

Thursday 5th March 2015
quotequote all
surveyor said:
I suspect that your opportunity to purchase is gone.

Focus on the Lease issue.

LL has a few ways to get possession back. Main ones are redevelopment, own occupation. Having someone else to put in is not one of them....

If they want you out they must a Section 25 Notice. You can object to this and request a new lease on similar terms at market rent. The terms will be implied if they are not written down currently. Expiry notice must be between 6 and 12 months distant.

If you want to move things along you can serve a Section 26 Notice renewal request. LL can object on same grounds as Sec 25.. Similar notice period. Focuses bad behaving landlords heads.

If you want to move you have to give 3 months notice.

If you can't agree a renewal court will set one at Market Rent. Cost in Surveyors and Legals's though so best avoided if possible.
Not having a written lease will be unhelpful to the landlord in terms of the 1954 Act - there's no way they could have excluded the right to compensation, so even if they did manage to find a ground to terminate they'll probably have to pay at least a sum equivalent to rateable value to do so.

The option to purchase sounds like it won't be enforceable; that's a property contract and to be valid that needs to be in writing and signed by the parties. I assume they didn't sign the piece of paper recording what had been agreed?

Ultimately, not a bad position to be in despite the lack of a formal lease. And the number of times I've spoken to people who have a promise that the landlord will sell to them is amazing - it's almost never enforceable. If buying the freehold is that important to you, get your solicitor to document it!

red_slr

Original Poster:

17,122 posts

188 months

Thursday 5th March 2015
quotequote all
Thanks guys. I have done my best to keep this agreeable for both parties but now they are ignoring the issue. The way I see it is I have kept the building in good order, in fact we have made modifications which has probably increased its value. We have paid 4 and a bit years worth of rent on time. We allowed them access to the building to do things like repairs on their vehicles (we (they) have workshops) use *our* machinery and vehicles FOC, even as far as when they come into the depot my yard hand has washed their cars using our power washer! I really cant have done any more.

I think reading the above their issue is going to be we currently pay well above market rent. In 2010 we agreed the rate and it seemed reasonable, perhaps a few grand over market but not the end of the world. I wanted to keep them happy, we were family bla bla bla.

Having looked around recently I can rent a similar site for c.75% of our current lease. And that's the advertised lease. I think 65% is more like it.

So if they want to re-new the lease the issue is they wont be happy with such a reduction in rent. I presume a court would look at market rates not what you have previously been paying?

Vocal Minority

8,582 posts

151 months

Thursday 5th March 2015
quotequote all
I had drafted out a reply about the 1954 Act - but now I have checked back in - what surveyor said (you'll be amazed to learn).

I presume that if there is not written clause stating you have to re-instate the property to its original condition at the end of the lease (in terms of improvements/modifications) - then one cannot be assumed by either party?

red_slr

Original Poster:

17,122 posts

188 months

Thursday 5th March 2015
quotequote all
No there is nothing of that nature in the "lease". The document I refer too is more of a payment schedule really but just with a few terms in there.
If we did move out then it would be my intention to put it back to how it was. It wont take long with the machinery we have here!!
Luckily I documented the renovation in photos so I can easily show before and after.

red_slr

Original Poster:

17,122 posts

188 months

Thursday 5th March 2015
quotequote all
Oh and as for redevelopment or owner occupation. First one is possible I guess but difficult - its on a large industrial area there is no chance of housing etc so they would have to maybe build new units or something? Second - owner occupation - again possible but they are retired now and would have no purpose for it. It would also cost them c. £20k a year in rates, insurance and general upkeep so I cant see them doing that.

I genuinely think they just think it comes to the end of the agreement and we move out?

cuneus

5,963 posts

241 months

Thursday 5th March 2015
quotequote all
Do a lot of your customers come to the site ?

If not consider just moving, my "trouble radar" is going off

surveyor

17,768 posts

183 months

Thursday 5th March 2015
quotequote all
Renewal is at market rent on otherwise similar terms. Rent passing has no effect.

red_slr

Original Poster:

17,122 posts

188 months

Thursday 5th March 2015
quotequote all
cuneus said:
Do a lot of your customers come to the site ?

If not consider just moving, my "trouble radar" is going off
We are mainly a delivery business but we do offer cash and carry which is c.25% of the business.
A lot of this business comes from 2 local companies who we have built a very good relationship with over the last 3 years.
If we did move the business I expect we would lose all that trade overnight.

red_slr

Original Poster:

17,122 posts

188 months

Thursday 5th March 2015
quotequote all
surveyor said:
Rent passing has no effect.
What does this mean, sorry!