Procurement 20 May 2016

Five things to consider when negotiating commercial property transactions

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The availability of office space continues to contribute to rising rents

For small business owners, negotiating commercial property transactions can be complicated. Head of commercial mortgages and portfolio management at challenger bank Aldermore, Ian Boden, looks into some of the key points to consider.

The UK commercial property market has shown extremely strong growth in recent years, and the availability of office space continues to contribute to rising rents. Investment volumes in the space totalled £67.5bn in 2015.

With analysts expecting a slower rate of growth over the next 12 months, we are likely to see investors switch their focus to increasing rental yields from their properties, particularly through refurbishment work.

Leases and agreements can stretch out to dozens of pages, which can be difficult for many small business owners and startups to get to grips with. Many may not have the time or resources to seek advice from a commercial property professional when negotiating terms.

When a business owner is looking to negotiate or renegotiate a lease, there are a few things that should be considered.

(1) Performing searches on the property is paramount

Once you’ve signed on the dotted line you will be liable for the rental payments regardless of external factors. While for the most part there shouldn’t be any issues, a search is a good starting point in finding out whether there are any upcoming plans from the local authority that would affect your business, or whether the property carries any additional obligations, such as contributions to street cleaning or maintenance of town property.

It’s also a good opportunity to check whether there have been any past issues with planning permission, which will be for the tenant rather than the landlord to sort out, and breaches of planning control can be enforced for up to ten years after the breach occurred.

(2) Purpose of the lease

While agreeing to a single use for a property may not seem like an issue initially, it can pose problems further down the line if you would like to expand your business or if you were looking to transfer the lease over, as the future tenant will have to abide by the existing terms of the lease.

On the flipside, while getting an all-purpose lease will be advantageous, the broader the terms, the more valuable the landlord is likely to view the premises, which may be a factor when renewing rental terms in future.

(3) Can I challenge a rental increase?

While this can vary from lease to lease, the ability to challenge a rental increase does not come as standard, and it is vital that small business owners consider this when a lease is being drafted.

(4) When can a landlord exercise their right for a rent review?

Rent reviews are a complex area, and will be specified in your lease at the outset. It is worth considering the time periods involved, as rent reviews do not automatically adjust with the length of the lease.

(5) Whether your landlord can change the terms of a lease on renewal

There are limited circumstances under which a landlord is allowed to change the terms of a lease on renewal, and legislation is in place to protect tenants. However, it is always worth seeking advice if there are any issues that you are not totally clear on.

Ian Boden is Head of Commercial Mortgages and Portfolio Management at Aldermore

Read on to find out about Appear Here – the online platform shaking up short-term rentals by connecting retailers looking for pop-up space with landlords.

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