Archives for January 2015

If we only agree the length of the lease and the amount of rent, we have left perhaps a dozen other terms and conditions which will not be tailored to the needs of the business. Does that matter?

In a typical commercial lease of about 40 pages, you can expect about 1½ pages to be clauses the landlord agrees to be bound by. They will vary depending on circumstances and they are a topic of another article. The point being that the other 38½ pages will include obligations, liabilities, duties and costs which fall upon the business, as tenant. Is there another contract in which a business owner would leave that much to chance?

It is always easy to negotiate on matters we understand. Money and time are in that category. How much and for how long. Knocking the rent down always feels positive and we may even get some time at the start of the lease before the rent kicks in – rent free period. The landlord has said how long the lease is to be, so that’s OK. But is it?

It is not that common to be in a position to negotiate. We don’t bargain over our trolley of shopping or a tank of diesel so it is understandable that when presented with a contract containing dozens of terms, the business owners may not know where to start to make it work for the business. If you don’t know what you don’t know, you are a bit stuck going forward.

What we can’t do is leave it to our solicitor to sort out. By the time it goes to the lawyers, the deal is agreed – crystallised – and cannot easily be “unagreed”. To try, is a very unsatisfactory and costly, up-hill struggle.

So how does a business owner get to grips with the opportunity a new commercial lease presents, to tailor its terms to the needs of their business? A good starting point is their own business plan. As the road map of a company, the business plan defines a whole range of parameters for the business: what it does, who it sells to, how many staff it employs and what skills they have, what technology it needs and so on. It is equally possible to use the business plan to help decide what premises it needs and the right lease terms.

So, by generating a property strategy from your business plan you can determine the physical attributes of the premises that will best suit your business – where, what size, what equipment; and then the terms it is going to be necessary to negotiate within any agreement – lease or licence, and therefore give your business the best chance of succeeding in its new premises.

Culverwell Consulting advises SMEs and start-ups on the complexities of acquiring business premises, through training, mentoring, full service consultancy, and using 30 years’ experience in commercial property transactions. Call, email or visit the website to find answers to your questions.

A new lease of life: businesses would surely achieve better terms if they knew how

An interesting article in a recent issue of Estates Gazette, by John Forbes QC and Vivien King discusses how commercial lease terms could be improved and clarified. As the vast majority of lease terms are burdens on the tenant, it follows that such improvement and clarification would have the effect of making the lease more realistic and even fairer to the tenant.

A select number of experienced real estate solicitors and support lawyers considered and discussed why lease terms are not evolving and becoming more explicit.

The rather sad summary of the problem [for business] is and I quote “… a landlord … is usually resistant to changes …” and “The client [the business which is about to become a tenant] wants a lease at an agreed rent to be drafted and agreed as soon and as cheaply as possible and apparently is not much concerned about trying to change and improve current practice”.

The article concludes with the massive understatement that this “is arguably not in the long term interest of the property industry.” It doesn’t mention that it is certainly not in the long or short term interest of business occupiers.

For a business to rebalance the landlord and tenant relationship and make the best advantage of its strengths, it needs to understand:

1. Businesses are the critical ingredient in the success of landlord’s investment model, without which that model fails. As such, the business has a strength of negotiating position, which will bring significant value and reward if properly exploited.
2. There are many complex elements to consider, which make up “the right premises” for the business. A well thought through business plan is a good starting point.
3. How the lease permits that business to occupy, can significantly affect the success of the business. The scope for negotiation on a ‘give and take’ basis to obtain the key terms identified in the business plan, will yield valuable results, short and long term.

Commercial property is not on the daily agenda for business owners, unless you are a landlord. This mismatch of familiarity and breadth of knowledge can lead to unequal outcomes for the business but it doesn’t have to be that way.