Leasing an industrial unit
Discussion
Ok chaps I’m after a little advice.
I’m starting up a small business (first time) and have found an ideal light industrial unit for rent. I have spoken to the landlord and he seems like a nice enough chap but has said that all negotiations etc should be done with the agent.
I have stated that I would like a 3 year lease with 18 month break clause and they seemed happy with this suggestion.
Anyway I have now got the terms and conditions through for the unit and they are asking for 3 months deposit + 3 months rent to be paid in advance and then rent to be paid quarterly in advance there after, they have also asked for 6 months notice on the break clause and a further 3 months payment if I chose to break!
Now this all seems a bit excessive to me and the initial outlay will make a huge dent in my cash flow, but being new to this game I don’t know if this is normal practice or a stitch up exercise, please discuss and offer any suggestions that may improve the situation in my favour.
Cheers
@well
I’m starting up a small business (first time) and have found an ideal light industrial unit for rent. I have spoken to the landlord and he seems like a nice enough chap but has said that all negotiations etc should be done with the agent.
I have stated that I would like a 3 year lease with 18 month break clause and they seemed happy with this suggestion.
Anyway I have now got the terms and conditions through for the unit and they are asking for 3 months deposit + 3 months rent to be paid in advance and then rent to be paid quarterly in advance there after, they have also asked for 6 months notice on the break clause and a further 3 months payment if I chose to break!
Now this all seems a bit excessive to me and the initial outlay will make a huge dent in my cash flow, but being new to this game I don’t know if this is normal practice or a stitch up exercise, please discuss and offer any suggestions that may improve the situation in my favour.
Cheers
@well
There seem to be a lot of available units out there, lots of offers on rates, rent free for X months etc. etc.
What makes this one so special? Sounds like they are trying to improve their own cashflow given the climate. If it was my company I'd walk away if they didn't want to do the deal I wanted.
What makes this one so special? Sounds like they are trying to improve their own cashflow given the climate. If it was my company I'd walk away if they didn't want to do the deal I wanted.
As a basic unless you are a really bad covenant you should be asking for 3 months rent free.
Other terms are fairly normal, but penalty for break is not on in this market. Break clause should be unconditional i.e, not reliant on complying with the terms of the lease.
Also consider repairs and dilapidation's - make sure that you are not on the hook for big expenditure. Schedule of Condition if necessary.
Other terms are fairly normal, but penalty for break is not on in this market. Break clause should be unconditional i.e, not reliant on complying with the terms of the lease.
Also consider repairs and dilapidation's - make sure that you are not on the hook for big expenditure. Schedule of Condition if necessary.
davidjpowell said:
Also consider repairs and dilapidation's - make sure that you are not on the hook for big expenditure. Schedule of Condition if necessary.
Yep, if you don't get the premises surveyed and a schedule of condition drawn up then get ready to get a really good going over when you eventually leave.The other guys are right about the terms too, take no notice of what they are asking, tell them what you are offering and move on tto the next one if they don't bite.
Thanks for your input gents,
This unit just seems ideally placed and of the right layout for my needs, I have looked at quite a few now but they all seem to be more compromised than this one.
Regarding the repairs and dilapidation's the terms state the following:
“A new full repairing and insuring lease for a term of three years.
Notwithstanding the full repairing obligations, the lessee shall not be required to hand the property back in any better condition than it is at present. This condition is to be evidenced by reference to a photographic schedule to be prepared by the agents.”
How does this seem to those in the know? What should I ask for?
I will defiantly enquire about getting the break clause notice shortened and charges dropped, although I can’t see me needing to use this clause anyway.
So are most companies paying their rent quarterly? Obviously I would prefer to pay monthly.
I understand them wanting some kind of deposit but they are in affect asking for six months rent on day one.
Would suggesting paying three months deposit up front, then having three months rent free followed by monthly payments there after be anywhere near agreeable for a first timer or is the agent going to laugh in my face and tell me to jog on?
Thanks again chaps
This unit just seems ideally placed and of the right layout for my needs, I have looked at quite a few now but they all seem to be more compromised than this one.
Regarding the repairs and dilapidation's the terms state the following:
“A new full repairing and insuring lease for a term of three years.
Notwithstanding the full repairing obligations, the lessee shall not be required to hand the property back in any better condition than it is at present. This condition is to be evidenced by reference to a photographic schedule to be prepared by the agents.”
How does this seem to those in the know? What should I ask for?
I will defiantly enquire about getting the break clause notice shortened and charges dropped, although I can’t see me needing to use this clause anyway.
So are most companies paying their rent quarterly? Obviously I would prefer to pay monthly.
I understand them wanting some kind of deposit but they are in affect asking for six months rent on day one.
Would suggesting paying three months deposit up front, then having three months rent free followed by monthly payments there after be anywhere near agreeable for a first timer or is the agent going to laugh in my face and tell me to jog on?
Thanks again chaps
A rent deposit and quarterly payments in advance are not uncommon, particularly with a business start up. However I suspect that you may have displayed a little too much enthusiasm for the unit and the landlord/agent is trying to capitalise on this and perhaps your inexperience with commercial property.
Repairing covenant ok. But look for nastiness. One of the problem with schedules is that they do not provide full protection.
For instance say windows. You are to reinstate to the same condition as evidenced in the Schedule of Condition. If they have deteriorated this is impossible, so you end up on the hook for new windows anyway. If the repair looks bad then it needs to be internal repairing only.
You are unlikely to get the notice period on the break reduced. Six months (and it is strict six months) is the norm. The penalty is different....
Quarterly is the norm in the commercial world. Your argument would be that as you are a new business your landlord would be able to spot problems earlier if you pay rent monthly.
No agent should be laughing in your face, and although some people will suggest landlords will do giveaway deals it is not always true. It depends on their individual exposure to risk, and whether letting at a reduced rent may impact negatively on capital value of a larger estate.
Your weak points in terms of negotiations, are a new start up, a short lease with a early break.
Also give some thought to the break point. To operate you would have to serve at 12 months or less - is this enough time to establish in your mind whether the business is going to work.
For instance say windows. You are to reinstate to the same condition as evidenced in the Schedule of Condition. If they have deteriorated this is impossible, so you end up on the hook for new windows anyway. If the repair looks bad then it needs to be internal repairing only.
You are unlikely to get the notice period on the break reduced. Six months (and it is strict six months) is the norm. The penalty is different....
Quarterly is the norm in the commercial world. Your argument would be that as you are a new business your landlord would be able to spot problems earlier if you pay rent monthly.
No agent should be laughing in your face, and although some people will suggest landlords will do giveaway deals it is not always true. It depends on their individual exposure to risk, and whether letting at a reduced rent may impact negatively on capital value of a larger estate.
Your weak points in terms of negotiations, are a new start up, a short lease with a early break.
Also give some thought to the break point. To operate you would have to serve at 12 months or less - is this enough time to establish in your mind whether the business is going to work.
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