Diesel

Guys

As part of some research for a potential business venture I’m having a look at some A1 retail leasehold business premises, but damn it seems expensive! It’s 4510 square foot, small useful car park in front & in a suburb, just off a main road. It’s a good space but needs complete kitting out for this business idea and at least £100k to prep it up. This is all a bit new to me but it seems a bit bonkers to sink £100k into something that is owned by someone else, whatever the term of the lease (and you’d want a short one to start in case it doesn’t work…?). The owners could want it back at any stage and would have you by the short and curlies with any future rent increase.

Anyway they want £30k pa for first year and then £50kpa. The only thing I can compare it to is domestic property mortgages and it equates to a mortgage on a million pound house @ £4000 per month! This aint no million pound shed so no wonder its been on the market over a year. Also rates are £12k…

Anyway, does anyone have any advice, experience or pointers here when securing business premises and leaseholds (which I seemingly have a common sense based aversion to!)

Cheers and sorry for sounding such a newbie!

D

DCI Gene Hunt

You're protected under the Landlord & Tenant Act 19.. (fails me now) whereby you lease the property from the Landlord and he can only request that the property is handed back (at the end of the lease) on one of several grounds... the act allows for automatic renewal of the lease and allows you to seek damages (2x rateable value)from the landlord for breaking said lease...

Check it out and if you want anything specific post away!

Scooby Soon!

Firstly do you really need 4510 square ft? Do you need to be in a prime postion? Do you really need to spend £100k fitting out?

Commercial properties are always priced over the odds, Tehy are expecting you to make an offer, so make an offer lower than a normal offer then walk away (if that makes sense). You can get a lease for something like 10 years with a 5 year break (so you can walk away from it) but unless they are really desperate I dont think you will get shorter than 2 or 3 years.

You will also have rent reviews written in to the lease, this means the rent will be going UP (they never review it and put it down!)

What is it you need it for?

Diesel

Thanks for the advice DCI.

I hope to see the place this weekend to quantify 4500 square feet visually. It may well be much too big - very much just kicking ideas about at the mo... Need to research same size place in an industrial park (but then marketing costs will be much higher and awareness/word of mouth lower).

Would need to kit it out with mechanical stuff costing money!

Prob a pipe dream, but still has to be explored as there is a MASSIVE gap in the market where I live for this service

Cheers

D

dpb

The only "lease" ive ever signed made me opt out of the landlord and tennant act - so cant help you

Diesel

I conceptually hate them! Complete waste of building up any capital asset, and if they make you sign such clauses little protection either...

Did you really HAVE to have those premises to make the business work?

D

dpb

Id imagine the lower rent is to suck you in ,i used to live Bighton marina - all the units were leased ? to a factory outlet and new tennants had a year very cheap and then they had to PAY there after (most went after that year )

if youve hit the right market i guess youll make it lol ( with a secure tennancy)

MikeCardiff

iTrader: (2)

5410 sq foot at £50K a year sounds fairly cheap to me compared to prices people I know are paying for industrial estate units, but it depends on the area as it varies hugely.

Dont forget as well your commercial rates on top of the rent, which will add another big chunk.

4510 sq foot is pretty big though, so I'd go an have a look and actually see it as its hard to visualise in your head. It also depends how much of the space is usable as often you find half of it is on a mezzanine floor, so isnt much use apart from for storage.

What I would say is if you're looking at spending £100K to get it work ready you need to be VERY sure the business is going to work unless you can afford to throw that money away.

Chrisgr31

Its the Landlord and Tenant Act 1954 which gives commercial tenants rights to renew their lease, as long as they follow the correct procedures (basically apply to Court at the right time for a new lease, and on the assumption that one of the Landlords get out clauses doesn't apply.

There are 78 or 8 grounds the Landlord can use to get you out, but most, such as not paid the rent, don;t apply as it is easy for the tenant to resolve the issue (pay the unpaid rent). So Landlords usually rely on want to redevelop the property, or want it for their own occupation. If the Landlord wants you out on these grounds he has to pay compensation based on the Rateable Value (RV) BUT unless you have been in there for 14 years or more you only get the rateable value. If been there more than 14 years its twice the RV.

However as stated by someone else the Landlord can ask you to give up your rights to renew. If he does you'd expect to pay a lower rent, possibly up to 10% lower.

Negotiate on the lease terms and rent, and watch a stepped rent. Problem with a stepped rent is the early parts are low and then go up in the later years BUT the rent review is based on the higher rent. So if in this case the real rental value is £40,000pa but the landlord is doing a deal by offering yrs 1 and 2 at £30,000 and the remaining 3 at £50k you have to be certain that by the end of year 5 the rental value will be more than £50k, as thats the minimum you are committed to paying.

Before agreeing lease terms you need to speak to neighbours to see what they are paying and get advise from a Chartered Surveyor, preferably one that acts solely for tenants.

Diesel

Good advice thanks guys. D