Shop lease negotiations in current climate
Discussion
So you want to take a lease, pay for the shop fit out, recruit and train your staff, but only sign a 12 month lease?
I'd have thought you would want a more normal length lease but include an earlier break clause, in case you decide you definitely can't make it work. But 12 months isn't a long period of time to properly test a new idea.
I also think you won't get many owners of prime location shops interested in giving a 50% discount for a very short length lease. I think most would prefer to wait for a better prospect to come along rather than sign up with what could be a flaky tenant (no offence).
I'd have thought you would want a more normal length lease but include an earlier break clause, in case you decide you definitely can't make it work. But 12 months isn't a long period of time to properly test a new idea.
I also think you won't get many owners of prime location shops interested in giving a 50% discount for a very short length lease. I think most would prefer to wait for a better prospect to come along rather than sign up with what could be a flaky tenant (no offence).
EddieSteadyGo said:
So you want to take a lease, pay for the shop fit out, recruit and train your staff, but only sign a 12 month lease?
I'd have thought you would want a more normal length lease but include an earlier break clause, in case you decide you definitely can't make it work. But 12 months isn't a long period of time to properly test a new idea.
I also think you won't get many owners of prime location shops interested in giving a 50% discount for a very short length lease. I think most would prefer to wait for a better prospect to come along rather than sign up with what could be a flaky tenant (no offence).
This assumes that there will be an even half-reasonable supply of businesses wanting to return to the high-street that now, might have gone the whole hog with digital transformation. I simply don't see the high street, at least in many places ever getting back to the way they were... At least all the time there is cripling business rates attached to them. Obviously high footfall places in busy places, London, Manchester etc I'm not referring to. I'd have thought you would want a more normal length lease but include an earlier break clause, in case you decide you definitely can't make it work. But 12 months isn't a long period of time to properly test a new idea.
I also think you won't get many owners of prime location shops interested in giving a 50% discount for a very short length lease. I think most would prefer to wait for a better prospect to come along rather than sign up with what could be a flaky tenant (no offence).
Canute said:
EddieSteadyGo said:
So you want to take a lease, pay for the shop fit out, recruit and train your staff, but only sign a 12 month lease?
I'd have thought you would want a more normal length lease but include an earlier break clause, in case you decide you definitely can't make it work. But 12 months isn't a long period of time to properly test a new idea.
I also think you won't get many owners of prime location shops interested in giving a 50% discount for a very short length lease. I think most would prefer to wait for a better prospect to come along rather than sign up with what could be a flaky tenant (no offence).
This assumes that there will be an even half-reasonable supply of businesses wanting to return to the high-street that now, might have gone the whole hog with digital transformation. I simply don't see the high street, at least in many places ever getting back to the way they were... At least all the time there is cripling business rates attached to them. Obviously high footfall places in busy places, London, Manchester etc I'm not referring to. I'd have thought you would want a more normal length lease but include an earlier break clause, in case you decide you definitely can't make it work. But 12 months isn't a long period of time to properly test a new idea.
I also think you won't get many owners of prime location shops interested in giving a 50% discount for a very short length lease. I think most would prefer to wait for a better prospect to come along rather than sign up with what could be a flaky tenant (no offence).
After all, if you own or lease a shop, you have just been through the worst 12 months in recent memory, so things can only get better. And the government will likely want to encourage some regeneration via the tax system. That doesn't mean there won't be changes resulting the pandemic, both in terms of type of shops which replace the old ones, and possible some change of planning use for the less desirable spots.
Interesting thread.
Eddie makes some great points. You really don't want to all the huge expense and trouble of getting a shop up and running and then be kicked out 12 months later because the landlord has found a tenant willing to pay a much better rent, and you only wanted a 12 months lease. A longer please provides security for the tenant not just the landlord. I have seen perfectly decent tenants kicked out of places because the landlord wanted the property back for whatever reason, and the tenant had previously refused to sign a long agreement thinking it would be better for them to not sign.
The one area I would disagree with Eddie slightly is the rebound of shops and the high street. Some do feel that people have been so cooped up for 12 months that they will go back to the high street in their droves, and 'rediscover' shopping in actual shops, and this will lead to a boom, but others, including myself, feel that Covid has simply accelerated the unavoidable demise of the high street, and it will never recover.
It is true that now is a good time for someone to get a good deal with a vacant shop unit. The landlord will likely be paying the business rates for the empty unit, and will be very keen to have it let, but just be aware that despite this, they will often be happy to wait it out for a 'better tenant' even if it costs them money, than give an unknown tenant, or a lesser paying tenant, a chance.
Also be aware that if this is your first foray into this sort of business, then the landlord will most likely want you to put the lease in your name personally, and not in the name of your Ltd Co that you just created a could of months ago. This is something reasonably important to bear in mind. If you sign up for a 5 year lease with a beak at 3 or whatever and your business doesn't work out after 12 months, then you will be left personally paying the rent unless your landlord find a new tenant.
I'm not saying don't do it. I took a risk 6 years ago and signed up to rented industrial unit at a cost of £12k a year (in my own name), and started a business. It worked out really well. Built the business up over 4.5 years and then sold it. It isn't all doom and gloom.
Eddie makes some great points. You really don't want to all the huge expense and trouble of getting a shop up and running and then be kicked out 12 months later because the landlord has found a tenant willing to pay a much better rent, and you only wanted a 12 months lease. A longer please provides security for the tenant not just the landlord. I have seen perfectly decent tenants kicked out of places because the landlord wanted the property back for whatever reason, and the tenant had previously refused to sign a long agreement thinking it would be better for them to not sign.
The one area I would disagree with Eddie slightly is the rebound of shops and the high street. Some do feel that people have been so cooped up for 12 months that they will go back to the high street in their droves, and 'rediscover' shopping in actual shops, and this will lead to a boom, but others, including myself, feel that Covid has simply accelerated the unavoidable demise of the high street, and it will never recover.
It is true that now is a good time for someone to get a good deal with a vacant shop unit. The landlord will likely be paying the business rates for the empty unit, and will be very keen to have it let, but just be aware that despite this, they will often be happy to wait it out for a 'better tenant' even if it costs them money, than give an unknown tenant, or a lesser paying tenant, a chance.
Also be aware that if this is your first foray into this sort of business, then the landlord will most likely want you to put the lease in your name personally, and not in the name of your Ltd Co that you just created a could of months ago. This is something reasonably important to bear in mind. If you sign up for a 5 year lease with a beak at 3 or whatever and your business doesn't work out after 12 months, then you will be left personally paying the rent unless your landlord find a new tenant.
I'm not saying don't do it. I took a risk 6 years ago and signed up to rented industrial unit at a cost of £12k a year (in my own name), and started a business. It worked out really well. Built the business up over 4.5 years and then sold it. It isn't all doom and gloom.
Edited by anonymous-user on Tuesday 23 March 09:14
Easy solution. 5 month lease, but negotiate a break at 1 year, or even better a rolling break period. Be wary of notice period - most landlords will want 6 months - which is fine, but if the break is as 12 months, now you are making the decision after only 6 trading.
Also be wary of a conditional break clause. The only condition you should be prepared to accept is payment of 'basic' rent up to the break date. i.e. Not including any 'additional rent' which may be service charge, insurance premiums etc. Any other conditions - especially that you have complied with the terms of lease makes operating a break risky and uncertain.
Also take note of repairing covenants. Ensure that you are not 'putting into repair', that there is a schedule of condition, and that you know whether any alterations that you may have made have to be stripped out. I have for instance had to remove air conditioning to comply with a conditional break clause where in any normal sense of the world it is of value to a landlord. Had it been lease expiry I'd have just left it and argued successfully that there is no diminution in value (actually the opposite).
As said expect directors guarantee in the case of a limited company.
Also be wary of a conditional break clause. The only condition you should be prepared to accept is payment of 'basic' rent up to the break date. i.e. Not including any 'additional rent' which may be service charge, insurance premiums etc. Any other conditions - especially that you have complied with the terms of lease makes operating a break risky and uncertain.
Also take note of repairing covenants. Ensure that you are not 'putting into repair', that there is a schedule of condition, and that you know whether any alterations that you may have made have to be stripped out. I have for instance had to remove air conditioning to comply with a conditional break clause where in any normal sense of the world it is of value to a landlord. Had it been lease expiry I'd have just left it and argued successfully that there is no diminution in value (actually the opposite).
As said expect directors guarantee in the case of a limited company.
williamp said:
Can you have a market stall??
Another good point.Is the business something that needs a 'proper' shop unit, or is it something that can be conducted from a flexible 'easy terms' workspace such as a market, or place that offers space pop-up shops.
There are a lot of shared retail and workspace type places now which allow you to rent by the day/week/month/year and so on.
Can it be done out of a converted van or trailer?
Consider all the options.
surveyor said:
Easy solution. 5 month lease, but negotiate a break at 1 year, or even better a rolling break period. Be wary of notice period - most landlords will want 6 months - which is fine, but if the break is as 12 months, now you are making the decision after only 6 trading.
Also be wary of a conditional break clause. The only condition you should be prepared to accept is payment of 'basic' rent up to the break date. i.e. Not including any 'additional rent' which may be service charge, insurance premiums etc. Any other conditions - especially that you have complied with the terms of lease makes operating a break risky and uncertain.
Also take note of repairing covenants. Ensure that you are not 'putting into repair', that there is a schedule of condition, and that you know whether any alterations that you may have made have to be stripped out. I have for instance had to remove air conditioning to comply with a conditional break clause where in any normal sense of the world it is of value to a landlord. Had it been lease expiry I'd have just left it and argued successfully that there is no diminution in value (actually the opposite).
As said expect directors guarantee in the case of a limited company.
^^^ This 100%. Also be wary of a conditional break clause. The only condition you should be prepared to accept is payment of 'basic' rent up to the break date. i.e. Not including any 'additional rent' which may be service charge, insurance premiums etc. Any other conditions - especially that you have complied with the terms of lease makes operating a break risky and uncertain.
Also take note of repairing covenants. Ensure that you are not 'putting into repair', that there is a schedule of condition, and that you know whether any alterations that you may have made have to be stripped out. I have for instance had to remove air conditioning to comply with a conditional break clause where in any normal sense of the world it is of value to a landlord. Had it been lease expiry I'd have just left it and argued successfully that there is no diminution in value (actually the opposite).
As said expect directors guarantee in the case of a limited company.
Also, be aware that a licence and a lease are different. A licence is just that, a right to occupy for a period of time with no right of tenure, i.e. you have to hand the property back and can't oppose the landlord taking it back.
At least with a lease and rolling break clause, you have rights of tenure and if the business takes off, you wont be vacating the property after 12 months, with all the costs etc that that would create. If the Landlord wants possession at the end, he has to prove one or more specific grounds, which can be quite a high hurdle (or you both contract out of the 54 Act, which you don't want to do).
Some landlords might not like a tenant break clause, but if the alternative is an empty shop, insurance costs, damage and rates (assuming it is not exempt) and you are in an area with a high void rate, then it might be the best offer he gets all month.
Yep - tonnes of empty commercial properties. I was able to negotiate a pretty hefty saving from asking for lovely premises, had been empty for the best part of 2 years with no sign of a tenant on the horizon. LL was paying biz rates and covering service charges - so a cheeky offer was better received than it might otherwise have been.
Perhaps your best bet is to talk to the commercial agents in your area and find out which LLs are smaller, more entrepreneurial and not managed by slow-moving witless management cos. They are more likely to consider offers, and less likely to take 6 months over a negotiation.
Perhaps your best bet is to talk to the commercial agents in your area and find out which LLs are smaller, more entrepreneurial and not managed by slow-moving witless management cos. They are more likely to consider offers, and less likely to take 6 months over a negotiation.
blindspot said:
Perhaps your best bet is to talk to the commercial agents in your area and find out which LLs are smaller, more entrepreneurial and not managed by slow-moving witless management cos. They are more likely to consider offers, and less likely to take 6 months over a negotiation.
This. Trying to negotiate with slow-moving witless management co's, with their pension fund clients can be like banging your head against a brick wall - they would rather see prop stay empty for another 12 months than do a deal.Speak to some agents locally, introduce yourself and let them find you something suitable.
cheekymeerkat said:
blindspot said:
Perhaps your best bet is to talk to the commercial agents in your area and find out which LLs are smaller, more entrepreneurial and not managed by slow-moving witless management cos. They are more likely to consider offers, and less likely to take 6 months over a negotiation.
This. Trying to negotiate with slow-moving witless management co's, with their pension fund clients can be like banging your head against a brick wall - they would rather see prop stay empty for another 12 months than do a deal.Speak to some agents locally, introduce yourself and let them find you something suitable.
Most of the properties on the big industrial estates/retail parks were owned and managed by groups who had interests nationwide, and they were absolutely painful to deal with. If you weren't DHL, Screwfix, Euro Car parts or a well known local business with 10+ years of profitable trading behind you they were not interested. They made it very clear that they would rather let it stand empty.
In the end I found a local family who owned a row of 5 large units, and they were incredibly easy to deal with. They had one empty and were not fussed at all about the intended use or my financial standing, they just wanted it let and were helpful.
When the rent increase came at 3 years, they didn't involve surveyors, valuers, and start sending letters, the owner just called in to see me and we just had a chat and agreed a fair increase.
Lord Marylebone said:
When the rent increase came at 3 years, they didn't involve surveyors, valuers, and start sending letters, the owner just called in to see me and we just had a chat and agreed a fair increase.
Can we rephrase that. You agreed an increase that you and the landlord were happy with. Whether it was fair and inline with the terms of the lease, and current market seems to have been ignored.surveyor said:
Lord Marylebone said:
When the rent increase came at 3 years, they didn't involve surveyors, valuers, and start sending letters, the owner just called in to see me and we just had a chat and agreed a fair increase.
Can we rephrase that. You agreed an increase that you and the landlord were happy with. Whether it was fair and inline with the terms of the lease, and current market seems to have been ignored.We both totally ignored the terms of the lease and the current market, and just talked it though. I gave him my reasons why I thought the increase should be minimal.
He was prepared to lower the proposed increase because he said we were good tenants, we didn't make a mess like the last people he had in, and we had carried out a number of useful improvements and renovations to the premises that would remain when we left.
It was just a simple and friendly negotiation between two business owners.
Gassing Station | Business | Top of Page | What's New | My Stuff