Renting out premises
Discussion
Hi
Perhaps I am crazy in considering starting a new business in this climate...
Anyway, I need some info on how renting a commercial property works.
I have my eye on a building that is PRIME location and is probably the only building suitable in the city where I want to put my business/shop.
It was vacated by a large national company about 3 or 4 years ago and has been sat empty (they didnt go bust, just moved elsewhere) - at the time I looked up the rent and it was £400,000 a year.
Now obviously it has been sat empty for years and in this current financial climate it must be worth even less - how much bargaining power do I have?
The company holding the 'rights' are CBRE.. I imagine they are just agents acting for the owners?
Could I push them for a really low inital rent - maybe linked to profit - if not, how low can I push them - do they have a lot of flexibility in pricing?
Part 2 - am I right in thinking if I buy into say a 20 year lease, if my business goes tits up I have to still pay the lease til the end? Is there any way out of this? Conversely, if my business lasts 20 years could they just push the price up to 'anything' when renewal time comes?
Any other information? I havent made contact with the company yet.
Perhaps I am crazy in considering starting a new business in this climate...
Anyway, I need some info on how renting a commercial property works.
I have my eye on a building that is PRIME location and is probably the only building suitable in the city where I want to put my business/shop.
It was vacated by a large national company about 3 or 4 years ago and has been sat empty (they didnt go bust, just moved elsewhere) - at the time I looked up the rent and it was £400,000 a year.
Now obviously it has been sat empty for years and in this current financial climate it must be worth even less - how much bargaining power do I have?
The company holding the 'rights' are CBRE.. I imagine they are just agents acting for the owners?
Could I push them for a really low inital rent - maybe linked to profit - if not, how low can I push them - do they have a lot of flexibility in pricing?
Part 2 - am I right in thinking if I buy into say a 20 year lease, if my business goes tits up I have to still pay the lease til the end? Is there any way out of this? Conversely, if my business lasts 20 years could they just push the price up to 'anything' when renewal time comes?
Any other information? I havent made contact with the company yet.
The thing that might stop them doign it on the cheap is the hope of eventually leasing it out for high sum they want, so they may just hold out.
In terms of business rates, where do I find out what the rates will be - from the council?
the premises are fairly large, it is 2 floors - but I think whats pushing the price up more is the location, its right in the town centre... obviously only the largest companies could afford 400k a year rent, and they are dwindling fast!
In terms of business rates, where do I find out what the rates will be - from the council?
the premises are fairly large, it is 2 floors - but I think whats pushing the price up more is the location, its right in the town centre... obviously only the largest companies could afford 400k a year rent, and they are dwindling fast!
The thing that might stop them doign it on the cheap is the hope of eventually leasing it out for high sum they want, so they may just hold out.
In terms of business rates, where do I find out what the rates will be - from the council?
the premises are fairly large, it is 2 floors - but I think whats pushing the price up more is the location, its right in the town centre... obviously only the largest companies could afford 400k a year rent, and they are dwindling fast!
In terms of business rates, where do I find out what the rates will be - from the council?
the premises are fairly large, it is 2 floors - but I think whats pushing the price up more is the location, its right in the town centre... obviously only the largest companies could afford 400k a year rent, and they are dwindling fast!
Up until fairly recent times, lack of rental income didn't seem to bother these large property owning corporations. Farnborough town centre has been a clear victim of neglect by its owners as they allowed shops to close at the time of lease renewal. No real attempts were ever made to find new tenants or to reduce their rent demands - so many of the shops remained empty for over a decade. It really brought the town down.
It seemed they were happy to sit on empty sites as long as property values continued to appreciate.
Things are moving now with a massive refurbishment programme in place but who knows whether they will be able to attract new shops into the new premises.
It seemed they were happy to sit on empty sites as long as property values continued to appreciate.
Things are moving now with a massive refurbishment programme in place but who knows whether they will be able to attract new shops into the new premises.
I'm one of those response for Farnborough town centre I'm afraid Eric! I work for Hollis Hockley in Farnborough and we act for St Modwen on their office/retail property in the town along with SEGRO's holdings at the new IQ Business Park.
You will be able to find the Business Rates at www.voa.gov.uk
There may be other reasons why the property has sat there such as future redevelopment plans etc. However many Landlords are prepared to look at flexible deals at the moment, particularly to offset their empty rates liability.
Do you want to drop me an email with some info on the property and I'll take a quick look at it for you? tsc@hollishockley.co.uk
You will be able to find the Business Rates at www.voa.gov.uk
There may be other reasons why the property has sat there such as future redevelopment plans etc. However many Landlords are prepared to look at flexible deals at the moment, particularly to offset their empty rates liability.
Do you want to drop me an email with some info on the property and I'll take a quick look at it for you? tsc@hollishockley.co.uk
I recognise that the redevelopment of Farnborough got held up for other reasons too - like bloody minded residents who kept lodging objections to the planning applications.
But I do wonder how long the current building work is going to take. My impression is that the Pyramid builders of Ancient Egypt moved at a faster pace.
But I do wonder how long the current building work is going to take. My impression is that the Pyramid builders of Ancient Egypt moved at a faster pace.
Mouk786, whatever you do here, take some professional advice! It's not clear to me if you are a new or established business, but either way, you are looking at a big rent, big rates liability and probably a big service charge figure as well. You will probably have to put up big deposit money to guarantee the lease as well. Do not think about signing a lease for 20 years without break options at regular intervals, usually every 5 years, that will coincide with rent review dates.The Londoner said:
Mouk786, whatever you do here, take some professional advice! It's not clear to me if you are a new or established business, but either way, you are looking at a big rent, big rates liability and probably a big service charge figure as well. You will probably have to put up big deposit money to guarantee the lease as well. Do not think about signing a lease for 20 years without break options at regular intervals, usually every 5 years, that will coincide with rent review dates.
too.New to this business? Start small then build up. A property with a rent of £400k is a massive debt evenif you get it for £200k - holly cow batman, thats massive.
20 yrs is a very very long time in business. You will need break clauses or just go for shorter terms 5- 7 yrs.
Not teaching you to suck eggs, but from the questions you asked about renting, would imply you havnt done so before, perhaps entering a new venture. Whats the venture, is it really going to bring in that much money? are you sure? Whats the business plan?
Edited by superlightr on Tuesday 6th January 13:16
like the above posts - do not commit to a long lease. On the last lease I took out (May 2008) on a smallish unit on Trafford Park, Manchester, which is always a pretty popular location, I got a decent price, a 5 year opt out and 6 months initial free rent, BUT I had to argue for it. Best of luck.
What Mo is looking at is a prime high street retail premises and 15-20 year leases would not be unusual on such a property (unlike for example a 3,000 sq ft office property which I would agree would be 3-5 year lease terms), particularly if like this one they have A3 (restaurant) consent. However, I would agree with you - its a MASSIVE commitment for a startup business and without more info on the proposed business it would seem to be a brave call.
You need to get advice on the specific building and your situation.
CBRE are indeed agents who could be acting for the owner or the last tenant. It's not clear from your post whether a new lease is being offered direct from the freeholder or an assignment/subletting of the current lease is be sought. The latter might explain why it has remained vacant, corporates have a habit of holding huge leasehold liabilities without seeming to notice!
New Lease - They can do any deal but are more likely to offer additional rent free than reduce the rent. 5 or 10 year terms are common, often with a lease break at year 5 for the longer term. Incentives depend on the market.
Assignment/Sub letting - The lease will dictate whether a rent can be agreed below passing (what is being paid). The chances are they can't do a deal below £400K. Incentives will again be offered dependant on the deal.
In this market a great deal depends on your covenant strength, it would be foolish to pay a large amount of cash (premium) to someone taking an assignment only for them to go bust - the former tenant has to pay the rent. If you represent a good tenant then you're in a good position to acquire but don't expect people to fall over themselves to deal with a start up without trading history.
Good luck.
CBRE are indeed agents who could be acting for the owner or the last tenant. It's not clear from your post whether a new lease is being offered direct from the freeholder or an assignment/subletting of the current lease is be sought. The latter might explain why it has remained vacant, corporates have a habit of holding huge leasehold liabilities without seeming to notice!
New Lease - They can do any deal but are more likely to offer additional rent free than reduce the rent. 5 or 10 year terms are common, often with a lease break at year 5 for the longer term. Incentives depend on the market.
Assignment/Sub letting - The lease will dictate whether a rent can be agreed below passing (what is being paid). The chances are they can't do a deal below £400K. Incentives will again be offered dependant on the deal.
In this market a great deal depends on your covenant strength, it would be foolish to pay a large amount of cash (premium) to someone taking an assignment only for them to go bust - the former tenant has to pay the rent. If you represent a good tenant then you're in a good position to acquire but don't expect people to fall over themselves to deal with a start up without trading history.
Good luck.
TimCrighton said:
What Mo is looking at is a prime high street retail premises and 15-20 year leases would not be unusual on such a property (unlike for example a 3,000 sq ft office property which I would agree would be 3-5 year lease terms), particularly if like this one they have A3 (restaurant) consent. However, I would agree with you - its a MASSIVE commitment for a startup business and without more info on the proposed business it would seem to be a brave call.
I think you'll see that changing soon. There was a suggestion recently in the EG iirc, or it may have been on EGi that the vacancy rate for retail properties is going to be something like 1 in 10 units vacant if not more as this year progresses. Landlords might have to be a little bit more flexible on this point.mouk786 said:
Hi
Perhaps I am crazy in considering starting a new business in this climate...
Anyway, I need some info on how renting a commercial property works.
I have my eye on a building that is PRIME location and is probably the only building suitable in the city where I want to put my business/shop.
It was vacated by a large national company about 3 or 4 years ago and has been sat empty (they didnt go bust, just moved elsewhere) - at the time I looked up the rent and it was £400,000 a year.
Now obviously it has been sat empty for years and in this current financial climate it must be worth even less - how much bargaining power do I have?
The company holding the 'rights' are CBRE.. I imagine they are just agents acting for the owners?
Could I push them for a really low inital rent - maybe linked to profit - if not, how low can I push them - do they have a lot of flexibility in pricing?
Part 2 - am I right in thinking if I buy into say a 20 year lease, if my business goes tits up I have to still pay the lease til the end? Is there any way out of this? Conversely, if my business lasts 20 years could they just push the price up to 'anything' when renewal time comes?
Any other information? I havent made contact with the company yet.
Some quick thoughts:Perhaps I am crazy in considering starting a new business in this climate...
Anyway, I need some info on how renting a commercial property works.
I have my eye on a building that is PRIME location and is probably the only building suitable in the city where I want to put my business/shop.
It was vacated by a large national company about 3 or 4 years ago and has been sat empty (they didnt go bust, just moved elsewhere) - at the time I looked up the rent and it was £400,000 a year.
Now obviously it has been sat empty for years and in this current financial climate it must be worth even less - how much bargaining power do I have?
The company holding the 'rights' are CBRE.. I imagine they are just agents acting for the owners?
Could I push them for a really low inital rent - maybe linked to profit - if not, how low can I push them - do they have a lot of flexibility in pricing?
Part 2 - am I right in thinking if I buy into say a 20 year lease, if my business goes tits up I have to still pay the lease til the end? Is there any way out of this? Conversely, if my business lasts 20 years could they just push the price up to 'anything' when renewal time comes?
Any other information? I havent made contact with the company yet.
1. As another has said, if it is a sub-lease / assignment, last tenant may have been too stupid to negotiate a below-market-rent clause, so £400k may be the lowest that it can go for.
2. Rates are easy - look up the Valuations Office (www.voa.gov.uk) and see what the rates are. If building has been empty for 3/4 years, a good rates consultant might be able to get the rates down on appeal on the basis that the presumed market rent was not achievable, but there are no guarantees there.
3. On the plus side, the law changed this year - business rates are now payable on empty buildings after 6 months, so there is a lot more incentive to refurb / re-let than there was before. That works in your favour.
4. Any offer you make should be an offer of terms, not just of money. You should always write the Heads of Terms, include all the clauses you want, and ensure you have enough room for negotiation.
5. Always ask for at a minimum:
- rent-free period (3 months is quite usual, 6 of the first 12 months can be got, just not necessarily in a row!)
- deposit returned after, say, 5 years if no late payments (irrespective of the term)
- no personal guarantee
- no ban on assignment for any reasons, no ban on sub-letting in whole or in part, and no minimum rent level clause
- no restriction on use (I argue this is a planning matter - you don't want to try to change the type of shop, only to be told you'll have to pay more rent as a result)
- tenants' improvements to be excluded from consideration in rent reviews (which in turn requires you to carry out a full photographic schedule of condition at the outset)
- tenant-only breaks
- no ban or undue restriction on non-structural alterations, decoration, signage
- internal repairing and insuring only (if possible)
- right to get competitive quotes for insurance
- right to full break down, justification and quoting / tendering on service charge items
That's just a quick flavour. Some surveyors will advise you well in this regard, but many are too, err, friendly to "the other side" and won't push hard enough on your behalf.
But whatever you do, you need professionals involved, if only for their insurance
I want to limit my personal liability if it all goes wrong
So is there anyway of adding a clause that basically says if my business goes bust I can leave the premises and not be reposible for paying rent/sub letting it out tosomeone else (low chance of that IMO)
Also, what are rent break periods? is that where i can effectivley do what i want to do above? is there anything to stop them putting up the rent massivley at the end of the term?
So is there anyway of adding a clause that basically says if my business goes bust I can leave the premises and not be reposible for paying rent/sub letting it out tosomeone else (low chance of that IMO)
Also, what are rent break periods? is that where i can effectivley do what i want to do above? is there anything to stop them putting up the rent massivley at the end of the term?
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