Given the current uncertainty around the exact terms and implications of Brexit, it is probably even more important for businesses to ensure that their property paperwork is in order, to future proof against all eventualities.
Although business sales, buy outs, expansions or contractions may not be on your current agenda, it is surprising the number of opportunities which are lost due to unsatisfactory paperwork. Although you may be muddling along and relying on the good relationship you have with your landlord, it is important to remember that landlords can sell their buildings or die, leaving you to deal with new people who may not be as accommodating.
There are, however, ways that you can try and protect yourself and your business from unforeseen circumstances and things which you can do to enhance your position should an unexpected opportunity arise.
As a Starting Point - Some Key Questions to Consider:
- If your business does not own its property does it have paperwork in place to authorise its occupation?
- Is your property fit for purpose?
- If not, is there a get out clause?
- Is your property in good repair and in compliance with any covenants in the lease or on the title?
- Do you have satisfactory insurance in place for your business?
- Business interruption?
- Any necessary property insurance?
- Are any rent reviews outstanding?
- Does the rent reflect the current market rate?
- How much is any Service Charge?
- Does it represent good value for money?
Considering some points in more detail:
Documenting Rights of Occupation
- If you own the property personally, granting a lease or licence to the business will enable you to:
- charge rent
- reduce the risk of any adverse rights of occupation being acquired
- sell the freehold
- sell your business
- If you have a separate landlord it is important to ensure that:
- the terms of your occupation are binding on anyone who buys or inherits the landlord’s interest
- the landlord’s obligations and tenant’s obligations are clearly defined
- there is evidence of the business’s rights
- It is also important to:
- check whether your lease has been registered
- establish whether any Stamp Duty Land Tax was due and paid
Managing Restrictions on Use
- If you are working on the dining room table or in an out building or converted garage at home or if your business has diversified or grown since you initially took on your business space:
- you may be in breach of restrictive covenants in your lease and/or on the title
- the planning permission may restrict or prevent this use
- the additional traffic and/or noise resulting from your business and the arrival of any employees, clients or customers at your property may annoy the neighbours and, potentially, lead to a dispute
- You could consider relocating or one of the many flexible workspace options available as an alternative or to supplement your current arrangements such as:
- short term lets
- serviced offices
- meeting room spaces available for hire
Physical Alterations and Works
- If you are looking at taking on additional business space consider:
- whether it is large enough to accommodate future additional staff
- if it can be re-configured easily to maximise the available space
- whether it is suitable for your business needs and, if not, whether it would be possible to alter it
- whether you can create self-contained areas to sublet space to assist with outgoings and rent
- if the current planning permission authorises your proposed use
- If you are planning to make alterations or have already carried out works consider:
- whether you obtained all the necessary consents from the landlord and/or the lender/mortgagee
- whether you have obtained any relevant planning permission and buildings regulations consents
Sharing or Disposing of Your Business’s Property
- If you have, or are about to take a lease you should ascertain:
- whether you can assign (transfer your lease) and/or sublet
- whether you can share occupation with group or other companies
- whether there are any break clauses
- If you want to exercise a break clause it is vital to ensure that:
- the deadline is not missed
- all the conditions are complied with
- the notice is served correctly
- If you do not intend to move out you may want to try and negotiate a rent-free period from the landlord in exchange for not exercising the break.
- If the mid to long term is uncertain, you could see whether the landlord would be willing to alter the timing of any break dates (effectively postponing them), or to introduce additional breaks.
- If you are successful in negotiating any variations to the terms of your existing lease, ensure that the changes are documented and registered:
- to protect your interest
- to avoid any misunderstandings later
Dealing with Dilapidations and Repair
- To establish whether there is anything which could leave you open to a claim for disrepair:
- check your obligations
- check whose responsibility it is to put defects right
- If the property was a new build or has recently undergone substantial renovation or refurbishment:
- disrepair resulting from latent or inherent defects may be covered by a builder’s or contractor’s warranty
- any warranty claims will need to be pursued within the limitation period
- If you are vacating a property or looking to sell your property or business, hoping to underlet or assign (transfer) your lease:
- is your landlord taking a reasonable stance on dilapidations?
- is your property in a marketable state?
It is important for all owners and occupiers of commercial property to establish:
- Whose responsibility is it to insure the property.
- What the terms of the policy are:
- if you are renting a property and the landlord is responsible for insuring it might be worth requesting a copy of the policy
- if the risks are not comprehensive (depending on the terms of the lease) you may be able to ask the landlord to increase the cover
- Whether your own insurance is adequate and covers business interruption and third-party liability as well as your belongings, equipment, your fixtures and fittings etc.
Outgoings and Cashflow
- If the rental value has decreased since the last rent review or the start of the lease it might be worth trying to agree a rent reduction with the landlord.
- Asking to change the timing of rent payments (for example from quarterly to monthly) could help with cash flow.
- If you are renting a property on an estate or within a building and you pay a proportion of the service charge which is not capped or fixed, it is worth checking that the provisions are reasonable and that the budget represents good value for money, especially in light of the new RICS professional statement regarding service charges in commercial property.
- Again, if you are successful in negotiating any variations to the terms of your existing lease, ensure that the changes are documented and registered:
- to protect your interest
- to avoid any misunderstandings later
If you have any queries or would like us to assist you to resolve any matters or to deal with a potential transaction, please do not hesitate to contact us.
This article is not a definitive statement of the law. It is designed as a free update on the law at the time of publishing. It is not a substitute for legal advice on specific facts and circumstances. BakerLaw LLP and/or the writer accepts no liability or responsibility for reliance on this article and recommends that you seek independent legal advice on your specific circumstances prior to taking any steps.