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12 Common Mistakes To Avoid When You Rent Commercial Property
Author : Tim Bishop
Transactions involving commercial property are frequently complex. Commercial leases and agreements often contain more than 50 pages of conditions, all of which can have a financial effect on you. Furthermore, new laws that clients are often unaware of can make things more complicated by inflicting extra requirements on tenants, even though they aren't specifically laid out in the lease. Listed below are 12 common mistakes that you should understand before you decide to rent a commercial property.
1. If my place is unusable due to fire damage, I can stop paying the rent and look for somewhere else.
If your business premises are destroyed or seriously damaged, you will have all the problems of finding alternative premises from which to trade. But what about the old premises? The law says that the lease continues and you must carry on paying the rent until the end of the lease.
2. I do not need to worry about insuring the property - that is the landlord's problem.
The lease will deal with who is responsible for the insurance, including what is covered by the policy. What is covered by the policy requires careful consideration and in certain instances you may need to take out your own cover as well. It is vital that you ensure that all eventualities are covered.
3. If I am renting commercial premises, there is no need to carry out searches against the property.
Landlords make no warranty as to the suitability of the premises for your purposes. It is important that you make all relevant searches and enquiries in relation to the premises prior to the commencement of the lease. Once you have signed up to the lease you will be liable for the rent. Consequently you simply cannot stop paying rent if something arises that affects the suitability of the premises for your business. Searches can reveal issues such as:
- That your Local Authority are going to create a pedestrian zone on your street
- That the land may be common land or registered as a village or town green. This will prevent any planned development or construction taking place.
- The planning history relating to the premises. Many tenants assume that planning permission is the landlord's problem, however breaches of planning control can be enforced for up to 10 years after the breach occurred. It is important to check that all planning permissions have been complied with.
- If the property carries an obligation to contribute to the cost of repairing the chancel of the local parish church. This will almost certainly be responsibility of the tenant.
4. I am renting property to use as a workshop. The lease gives me permission to use the premises any way that I choose - I assume this is advantageous to me.
This is not always the case. The use to which the premises can be put may have the effect of increasing the amount of rent payable when the landlord comes to review the rent in the future. The broader the use to which the premises can be put, the more valuable the premises.
5. I am renting premises for use as a butcher's shop. The lease permits this use but no other. I assume this is not a problem for me.
Whilst it is fine for your business purposes, the restriction may cause problems in the future. For example, if your business is not a success and you need to transfer the lease, then any person to whom you assign the lease would also have to use it as a butcher's shop. Consequently it may prove difficult to find a suitable tenant.
6. I am not registered for VAT and the landlord has insisted on adding VAT to the rent I agreed.
Whether the landlord can do this will depend on the exact terms of the lease. However this matter should be clarified when the lease is initially negotiated.
7. My lease gives me a right to park 5 cars in designated parts of the communal car park. The new landlord claims they are not bound by these rights and has reduced the number of spaces allocated to me.
Unfortunately seemingly simple matters like car parking are very complicated from a legal perspective and are often not properly dealt with by the landlord in the lease. Consequently it is possible that the new landlord will not be bound by these provisions.
8. My landlord has stated that there will be car parking at the premises.
Not necessarily. The lease will need to be checked to establish whether or not there is an allocated parking space or spaces or whether there is only a right to park on a 'first come first served basis' in a communal car park.
9. I plan to rent the premises through a limited company. If this company becomes insolvent, I can walk away from the property and the lease.
Not necessarily. It is likely that the landlord will try to obtain personal guarantees from the directors of the company. Careful consideration should be given to the terms of any personal guarantees provided. For example, the tenant should aim to include a term enabling any guarantee to be released on assignment.
10. The success of my business will not affect the rent which I have to pay.
It might! It all depends upon the terms of the lease. The landlord's ability to change or 'review' the rent is a very important part of the lease. It requires careful consideration when the lease is being drafted.
11. I do not need to be concerned about Asbestos Regulations.
Under the Control of Asbestos Regulations all commercial premises must have a report detailing the presence of asbestos at the premises. This report must be updated at least annually. As tenant, the lease may make you liable to comply with these obligations which in turn can prove costly. It is vital that this is discussed when the lease is being negotiated, and before it is signed so that the tenant will not be liable for compliance with Control of Asbestos Regulations.
12. I do not have to worry about Fire Regulations.
Under the Regulatory Reform (Fire Safety) Order specific rules for the preparation and updating of a risk assessment and fire precautions will attach to both the landlord and the tenant., It is essential that both parties liaise to ensure they not only know and apply the Regulations correctly but dovetail their activities to prevent loss or damage occurring, A criminal prosecution is likely to follow any failure to comply as these rules are for the protection of your employees and the general public. An experienced commercial property solicitor can advise you on the appropriate searches and enquiries that should be made relating to the premises.
When entering into a commercial lease, make sure that you instruct a solicitor experienced in dealing with commercial leases who can interpret and negotiate the terms for you before agreeing a lease. Ideally this should be prior to the communication of the Heads of Terms which record your agreement with the landlord. Failure to do so can prove expensive
Author's Resource Box
Bonallack & Bishop are Andover Property Solicitors with considerable experience in advising commercial landlords and tenants . Tim Bishop is senior partner at the firm, which he has grown by 1000% in the last 12 years. He sees himself as a businessman who owns a law firm and is responsible for all major strategic decisions.
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Tags: Andover conveyancing Solicitors, Andover commercial lease solicitor, Wiltshire lawyers, Hampshire tenants, Dorset landlords, Warminster landlord and tenant lawyer
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Submitted : 2010-01-28 Word Count : 1 Popularity: 170