Converse Law, Co-Founder and Property Partner, Imdaad Sulaiman specialises in assisting businesses secure their “dream” premises from which to trade successfully. He has particular expertise of working with retailers and those in the hospitality space in expanding their reach to broaden their own customer base.He discusses the factors which must be considered when acquiring a business premises.
So you’ve adopted Kirstie and Phil’s mantra and have spotted the perfect home for your business to flourish. “What more do I need to do other than grab those keys and get the punters in the door?” You may say…!
Whilst location is a key factor, there are a number of other important factors to take into consideration:
1. License, lease or buy?
Licence:
A licence is a permission by the owner allowing you to occupy either the whole or a part of a building to run your business. As it is a relatively short document (usually between 5-7 pages) it does not require much negotiation between the parties to put this in place and get you up and running and ready for trading. It typically suits smaller businesses and start-ups that just want a roof over their head and decent WIFI.
A well-drafted licence on the part of the owner will ensure that it cannot be construed as being a lease. This goes back to a licence being a “permission” to occupy. This means that you do not have exclusive possession or use of the premises – in fact, the licence will allow the owner to have access and use of any part of the building including your designated place of trading as and when it chooses.
A licence affords you little to no security to run your business. Once the licence period comes to an end, there is no obligation for a new licence to be granted by the owner. You could be out on your ear and having to search again for “location, location, location”…
Lease:
Most businesses will occupy premises under a lease. Unlike a licence, a lease gives you exclusive possession of the premises – in other words, the landlord cannot just wander in and out of the premises without notifying you beforehand unless it is an emergency.
You also need to consider how long you want your lease to run. 1-3 years may suit a startup/fledgling business looking to make its mark with a visible presence but not to be tied down long-term in case larger digs are required further down the line. A 10-15 year lease term will suit the more established trade looking to move to bigger space with the scope for taking on growth and expansion.
Lease for terms of more than 5 years will invariably include mechanics for increases in annual rent at fixed yearly intervals – at year 3 in a 5 year lease, and every 5 years in leases of 10 years or more. Subject to a contribution from you (AKA the service charge) the landlord will look after the building including any common areas. You are responsible for your work space. You can usually make alterations (with the landlord's consent).
At the end of the lease, you will need to hand the property back to the landlord in line with your repairing obligations. This may include removing any alterations you may previously have carried out.
Buy:
Buying your own premises is a big commitment, but gives you the option to alter and improve the premises as much as you like, to suit the needs of your business. It also means that if you no longer need the premises for your business, you have the option to become a landlord and lease or license space to other businesses.
Owner-managed businesses like to acquire their space in a pension scheme and then lease it back to their trading business – the rent from the trading business goes back into the directors’ pensions – win, win! (subject to taking your own independent tax advice of course!)
2. Know what you’re looking for
Draw up a 'property spec' with a list of what you are looking for and which are essential, and which are ‘nice to have’. A good spec will stop you wasting time looking at premises which are non-starters.
- Think about your space requirements – how much space does each person need? Do you need additional space for equipment, meetings, storage, dispatch?
- Think about layout – will open plan space work best for you or do you need areas that offer privacy and are quieter?
- Access needs – do you need to be on the ground floor? How many entrances do you need (how wide and how high?)?
- Services and facilities – e.g. light, heat, power, WCs. Kitchen, phone sockets, broadband, air conditioning and good security – to name just a few.
- Does image matter? – will visitors or clients be coming to your premises? Are your premises an important factor for attracting both potential employees and customers?
3. Think about the future
Many businesses underestimate how quickly they will outgrow their premises. Finding premises in a multi-unit block enables you to move from one unit to another within the same address, minimising cost and disruption. You could also look at subletting part of your premises initially, which could give you the potential to expand in due course.
4. Searching for business premises
Using your property specification as a starting point can give you clarity and avoid time wasted on unsuitable properties.
Make the most of personal contacts – there may be opportunities to hear of premises not on the open market or you may be able to share or sublet premises if they are based in the area you are interested in.
Local authorities, business support organisations, LEPs or Chambers of Commerce may be able to help. Also look in relevant publications and websites and find a good local commercial agent to help you in your search - they will know the market and what is available and are experienced in negotiating the price and terms of a contract, taking commercial factors into account.
5. Involve the professionals
Involve your lawyers before committing to any legal agreement. Depending on the circumstances, there may be a need for a legal due diligence, planning permission, licence applications and much more. Engaging early can help you to navigate the process and avoid any pitfalls. A surveyor can conduct a structural survey before committing to a property – another way to mitigate risk and ensure you know what you are signing up for. Any issues can be raised and dealt with before legal completion.
Imdaad Sulaiman is Co-Founder and Property Partner at Converse Law. If you’re looking to acquire a business premises for the first time or as part of an expansion or growth plan – get in touch.
