Query: leasing a retail unit

The Minstrel

<initally posted in 'property' section in error>

Just wondering if someone could shed some light on the obtainingm of a lease for a commercial retail unit. I wanted to contact a letting agent about a vacant retail unit, but am worried that I might come across as a complete and utter greenhorn.

So, what type of questions should I be asking? One of the things that has me flummoxed is this "key money" that people keep talking about. What should one be on the look out for etc when negotiating a lease?

smelltheglove

I spoke to a letting agent only a few days ago for the first time.

For me the most important questions were exact location and square footage, not everywhere asks for key money, it depends how high up the market you go.

One thing I found was that the letting agent seemed to think he knew what the best location for me was, being a photographer I want to be in a central location. The agent seemed to think I was best off where there is parking in the industrial estate whereas all I wanted was a central location with lots of passing traffic, my main business is that people see my name, i.e. sally who lives in the estate past the village is getting married, the first person she will call is the photographer in the village.

Know what you want and stick to it.

DubTony

The Minstrel wrote: »

<initally posted in 'property' section in error>

Just wondering if someone could shed some light on the obtainingm of a lease for a commercial retail unit. I wanted to contact a letting agent about a vacant retail unit, but am worried that I might come across as a complete and utter greenhorn.

So, what type of questions should I be asking? One of the things that has me flummoxed is this "key money" that people keep talking about. What should one be on the look out for etc when negotiating a lease?

First things first, if the unit is currently empty, PAY NO KEY MONEY. Key money is the money that used to be paid to landlords to get in. It's rarely done anymore, although sometimes if you're buying a lease from a sitting leaseholder there'll usually be a financial transaction of some sort.

Check out how much other retail units in the locality are renting for. They're usually quoted per sq. ft. or sq. mtr.

Don't sign a personal guarantee unless you're absolutely 100% positive that the location is dead right for your business and has the passing trade etc you'll need. Having said that I'm of the opinion you shouldn't sign one at all.

Get a break clause on any lease you sign. This will get you out of the lease after the agreed period for the agreed price, if any.

Get a solicitor who will fight for you. You really don't want some lilly-livered f*cker who'll simply push the paper back and forth. They all charge the earth, so make them work for it. Try to negotiate a fixed price. Check around.

PM me if you want to discuss it further.

antoinolachtnai

To be honest, you are a greenhorn by the sounds of it. I would get some help from someone who is already in retail if I were you. Otherwise, you won't even recognise a good deal if someone happens to offer you one.

Hennybug

Good advice there from Dubtony. You need to do research in the area and find out what the average rent is. On the Lease itself, find out the length of Lease they are prepared to give and if the Landlord will do fit out/contribute to is if necessary.

Definitely look for a break clause - in a long lease this usually is @ 10/13 year mark. Under no circumstances give a personal guarantee, if it doesn;t work you don't need to be saddled personally.

If you agree terms get a decent solicitor who will check everything out for you and make sure you're covered.

The Minstrel

Hennybug wrote: »

On the Lease itself, find out the length of Lease they are prepared to give and if the Landlord will do fit out/contribute to is if necessary.

Definitely look for a break clause - in a long lease this usually is @ 10/13 year mark. Under no circumstances give a personal guarantee, if it doesn;t work you don't need to be saddled personally.

In the event of a failed venture, generally speaking what is the penalty for defaulting on a lease - presuming that I haven't given a personal guarantee.

If on a short-term lease, are you at the mercy of the landlord for a bumped up rent, or are rent reviews/extensions ever factored into lease agreements? What duration of lease would generally be deemed prudent?

DubTony

The Minstrel wrote: »

In the event of a failed venture, generally speaking what is the penalty for defaulting on a lease - presuming that I haven't given a personal guarantee.

If on a short-term lease, are you at the mercy of the landlord for a bumped up rent, or are rent reviews/extensions ever factored into lease agreements? What duration of lease would generally be deemed prudent?

Landlord can sue the company and probably try to sue you too, anyway.

Rent reviews are factored in, usually every 5 years. In a short lease they're probably wouldn't be one.

As to what length of lease is prudent, imo, none. An honest landlord and an honest tenant will come to an honest arrangement where the landlord will promise not to go after the tenants house as long as the tenant has paid the rent every month, they'll get along just fine, the landlord will enquire about how the tenant's business is going and reduce rent when things are bad and the tenant will pay a bit more when things are good and everyone will smile and be happy. But that only happens in Fantasyland. (So no help here - sorry)

Lplated

While i don't always agree with DubTony , here he's fairly spot on with two additions -

first, there have been some legal noise lately about rent clauses, specifically that the kind of upward only rent clauses in leases in the last few years should now, in light of the recession, be viewed as including the possibility of downward rent.

There hasn't been a definitive court statement yet (just one judgment in the Masters Court) but i would want such a clause expressly included in a lease, if i were you.

The second point is with regard to the duration of a lease - there is provision in law that once a leaseholder has been in possession for a certain time, they must be be offered a continuation lease - this is generally to your, rather the landlords, advantage, as you get the option of continuing. The downward rent clause is all the more important with the possibility of renting for a prolonged period.

antoinolachtnai

I think the law has chaged as regards the continuation lease. The change is subtle but important. You really need good real estate and legal advice during the process if you are uncertain.

You also need to think about how important it is to hold a particular site for a long time. If you are running something like a cafe, it's very important; if you are running a boutique clothes shop, moving to a different premises nearby isn't such a big deal.

murphaph

antoinolachtnai wrote: »

I think the law has chaged as regards the continuation lease. The change is subtle but important. You really need good real estate and legal advice during the process if you are uncertain.

You also need to think about how important it is to hold a particular site for a long time. If you are running something like a cafe, it's very important; if you are running a boutique clothes shop, moving to a different premises nearby isn't such a big deal.

The law changed last year with the Civil Law Act 2008. However, both the landlord and tenant need to contract out (ie, waive) the right to any business equity being established (basically it is automativally established after 5 years continuous occupation otherwise). Landlords will likely start to request tenants to contract out of automatic business equity (the right to a lease renewal) before signing any lease in future but in my experience even many solicitors are ignorant of the new provisions and they are important ones.

The law as it stood was unfair to landlords (and in many instances prevented otherwise good tenants from getting a fairly long lease) as landlords were afraid of losing control of their own property in perpetuity once a mere 5 years of a lease was reached. A 4 yr 9/11 month lease is not much use to a tenant with long term plans but they were and still are common and will remain so until the new law beds down and allows landlords and tenants to work together a bit more.