Tax & admin 14 November 2016

A guide to rental agreements and business rates liability

rental agreement
If an individual’s name is on the lease, all responsibility is passed to them if the business should fail

In his latest blog post, business rates advisor Mark Allen takes readers through some key considerations when dealing with rental agreements and business rates for new premises.

When renting premises for a new business, the renter should sign the lease in the name of the venture only, preferably without guarantors, who could personally face big rates and rent bills, if the business should fail, for the rest of the term of the lease.

The lease should only be signed in the limited company name with all correspondence regarding the rent and lease addressed to the company.

If an individual’s name is signed on the lease or as a guarantor, all the responsibility is then passed on to that individual, or that guarantor, for rates and rent if the business should fail, removing the liability from the limited company.

There is no point going through the limited company process with directors, audited accounts, shareholders and dividends if the liability for rental agreements ends up with individuals to remove liability from landlords, in respect of future rates and rent bills.

It could be seen as a weakness in the process that some landlords are trying to remove or circumnavigate this limited company liability, through trying to get individuals to personally sign lease documents.

Once signed in a personal capacity or as a guarantor the landlord can then present the lease documents to the council, so as to remove any business rates liability from them for as long as the lease is in operation.

It is the rental agreement which will indicate to the landlord and council that the limited liability of the limited company ends with the company and then should not be passed to any individual personally. This is why the company is limited for the reason of limited liability.

At no point should a private individual’s name be used on the lease. If this basic understanding cannot be achieved with the landlord, then you may want to think again before signing the lease.

If you have to sign your own name because the company is not limited it means that any rental or lease agreement should be closely examined by the renter before signing.

If the lease is long term and the renter cannot release themselves, they will be personally liable for the rent and rates over the forthcoming months or years.

To sign a lease in an individual’s name can lead to financial ruin. A great deal of thought should be given before you sign your individual name to any lease document.

It is the case that future bills for rent and rates can be given to bailiffs to chase, and they may chase you personally. Even if you sign the lease in your personal name on behalf of the company you may still be liable.

If the occupying business is limited and struggling there is the option of closing it down, although the council, landlord and even Bailiff Company if involved, may claim to be a creditor and if there are any outstanding rates or bills due, they could try to prevent the closure until any outstanding debts have been paid.

However, if limited and signed in the company name only, all the correspondence and any future bailiff visits from either party should go to the company address. As the business will no longer be operating it should not matter to any individuals personally involved with the company.

Evidence (the lease in the company’s name) may be needed as well as a closed business bank account to prove to the council and landlord the business has failed and closed.

It has been known for some council’s to address rates letters to individual directors of a company to then allow them, the council, to update their records and make the director responsible/liable for the business rates without the director’s knowledge.

This could be seen as an attempt to remove liability from the limited company and place it on a named individual. This action if engaged in by a council needs to be immediately brought to their attention and rectified with a copy of the lease signed in the company’s name being sent to the council.

Which tax credits and reliefs is my business eligible for?

Sign up to our newsletter to get the latest from Business Advice.


 
TAGS:

Q&A

If you’ve found the article above useful, but have a more detailed and bespoke question, then please feel free to submit a query to our expert. We at Business Advice will get in contact with them on your behalf and arrange for a personalised response. These questions and answers will then be collated on the site for any other readers who have similar queries.

Ask a question

From the top

Find out how KPMG Small Business Accounting can really work for you

FIND OUT MORE