Covid-19 has seen a shift to flexible and home working so your current premises may now exceed what you need, or perhaps business is booming and you need to expand.
In this article, Sally McFadden, Associate Director in the Commercial Property team of law firm Greenaway Scott (part of the GS Verde Group), explores considerations for business owners around lease renewals.
Need for Premises:
your premises provide a business hub, aiding collaboration and providing an important social component, you can’t have a water cooler moment if there is no-one around the water cooler. You must consider what activities you will continue to run from your premises; and how many people occupy the building and at what times, to help determine if you need to move.
This is a contract with your landlord under which you are obliged to pay rent for the full term, and ending, changing or transferring it is not always easy. It will specify if you can transfer (assign) or share occupation, and even if you have these rights you will still need to comply with conditions and pay the landlord’s costs.
it’s likely your lease was granted after 1995 and contains an AGA, nothing to do with posh cookers, an AGA (Authorised Guarantee Agreement) requires you to act as guarantor of the new tenant until the lease ends, or they transfer to another party.
Ending your lease:
if you’re lucky you’ll have a break clause but you must give the specified number of months’ notice to your landlord, often to land on a particular date and in a very specific format. If you don’t have a break clause you may want to ask your landlord if you can end or ‘surrender’ your lease. You may have to pay a surrender premium as compensation for the lost rent which can be quite considerable.
Schedule of Dilapidations:
you are usually required to keep the premises in good repair. If ending early, the landlord may serve a Schedule of Dilapidations which is a claim based on the cost of works you should have completed, plus loss of rent for time spent completing the works. It’s a double whammy as you may also have to pay the landlords costs in preparing the schedule.
you are required to fully vacate, so don’t accidentally leave goods, furniture or other items on site. You may also have to reinstate where you have made alterations.
Finding new premises:
this is not always easy – attractive premises in good locations fetch higher rents, parking spaces are often geared to floor space etc. You may need to upgrade plant, machinery and IT infrastructure, all of which comes at a cost coupled with moving costs if you are relocating.
If you are taking a new lease you may need to pay land transaction tax or stamp duty land tax as well as any legal and surveyors costs in negotiating a new lease.
Fit-out: these works take time and you should ask for a rent-free period to help reduce your overheads whilst you are not trading.
Speak to your landlord:
If you’ve been a good tenant, your landlord could be keen to keep you and may agree to a long-term rent reduction, more flexible shared occupancy, or may have additional space for you if that’s what’s needed. “A little more conversation!”
Greenaway Scott is part of the GS Verde Group.