Acquiring a lease for business premises
Your biggest single contract in terms of cost could well be your
property lease. It is also the least flexible contract, so it’s
important to get it right from the start.
Nicole Escue, director of
international corporate real estate at Haywards, has the following
tips.
Choose the right workspace
First consider the business needs in terms of property; location, cost
and image. How does your company work; in the office, flexibly, touch
down spaces? Where do key staff live and what are the necessary
workflows in the office? Make sure that the property fits and supports
the business and not the other way round.
Take a look at your business plan in connection with your prospective
new office. What is your projected growth and what is your likely
headcount over the term of the lease you are considering. Acquiring too
much space can be a costly mistake. If you are uncertain as to your
future growth, discuss options for flexibility in your lease.
Planning the project
You should prepare an end-to-end budget upfront, including all project
costs (move, legal and advisory fees, fit out, stamp duty, etc), rent,
service charge and rates expenses and occupancy costs going forward.
At a minimum, your occupancy costs should include a budget for
utilities, internal cleaning, repairs & maintenance, insurance,
security, and health & safety. In addition, be sure to consider
both cash flow implications, as well as the effect of any impact on the
P&L accounts.
Don’t forget that move costs, legal fees and advisory fees must be
expensed, and your company policy may vary on depreciation periods for
items like furniture, cabling and electronic equipment. Your FD can
assist on this.
Always factor in time too. It can take between four and six months to
complete leasing and fit out - nearer to eight if planning is poor.
Nailing the negotiation
Many people think that because they have bought a house or leased a
flat that they can do a commercial property deal. In order to achieve
the best terms possible, and to avoid as much risk as possible in the
terms of your lease, an experienced chartered surveyor is a necessary
part of the process.
Don’t forget, the world of commercial property is
very “clubby” - everyone knows everyone, so you will always be
outflanked in negotiations without the right professionals by your
side.
A good lawyer is important as well, but a surveyor will have the
commercial acumen, practical experience and market knowledge to achieve
the best deal, whilst mitigating risk, whereas your lawyer should serve
as a draftsman and advisor on legal points.
When negotiating the principle framework terms of the lease (known in
the industry as “Heads of Terms”), be certain to cover all key lease
points from the outset, paying particular attention to repairing,
insuring, reinstatement and subletting clauses.
Also important are the
service charge and rent review clauses. This will save time and money
with lawyers by avoiding a lengthy lease negotiation process, getting
you in your new office quicker.
Structure your lease with appropriate rent free periods, capital
contributions and loyalty bonuses, as well as lease breaks and
expansion options, but don’t forget that many surveyors will focus on
“the deal,” and your company will be left with the legal document for
the term of the lease.
So make sure whomever you appoint is aware of
all of the legal implications for you as a tenant going forward.
Survey before settling in
When selecting the new home for your company, a building and services
survey is an important item to include in your budget. Most leases in
the UK are fully repairing and insuring, which means that you are
liable for maintenance and repairs over the term of the lease.
So,
it’s important to make sure the property is in good shape, even in
buildings with high occupancy, before you take it on as your own. A
schedule of conditions performed up front, which documents the state of
the property when you take it over and is an important record for your
reinstatement and dilapidations negotiations at the end of your lease.
These reports are a worthwhile investment, as spending £2,000 upfront,
could save you £50,000 in liabilities over five years’ time.
www.haywardsllp.co.uk
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