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How many different places do you work? And where do you feel most productive? With a plethora of options available to the working population, how do you choose? Personally, I find different workspaces quite stimulating. For example, sometimes I’ll work from a car or coffee shop, particularly if I’m out and about meeting a client. Other times I’ll work from my home or garden office. I’ve even been known to send an email from a ski lift whilst on holiday! In this blog, we’ll take a look at the pros and cons of a few of the most common options.

 

The first question to ask, of course, is what you need. Do you need somewhere with few distractions, to aid focus? Perhaps somewhere quiet, so you can take calls? Or the opposite, somewhere with a background hum of activity to motivate you? Take some time to consider what environment helps you get into work mode and also whether your needs vary, for example, do you need different conditions for deep work vs more low-effort admin work?

 

Secondly, let’s take a look at what different work environment options can give you. You may find by doing this thought exercise that you need two or more of these options to meet all your requirements.

 

1. The Home Office:

•       Pros: If you live and work alone you can control the environment and keep things quiet, or play music, to your preference. If you can dedicate a room or space in your home, it can be personalised for comfort, decorated to your liking and of course, there is no commute!
•       Cons: If you live with others, particularly kids or pets, then you may have a lot of distraction to deal with, plus the lurking necessary of household chores. Many work-from-homers complain of the blur of work-life balance, so it’s important to consider how effectively you can compartmentalise. Obviously, this relies on working with your team remotely, if you have one, and meeting clients out and about at coffee shops or similar.

2. The Garden Office:

•       Pros: Provides a peaceful environment if you are reasonably sound-proofed, plus there is the added bonus of benefiting from connection with nature. You may also find a separate space reduces home-based distractions.
•       Cons: You are at the mercy of the weather, depending on how well-insulated your garden office is! Alongside this, you may not have all the amenities of a home office such as a bathroom or heating. Compared to taking over a room in your house, a garden office is also an additional expense to your business. Again, dependent on size you probably won’t have the space to accommodate a team or visitors.

3. Co-working Spaces:

•       Pros: There are likely to be many affordable, flexible workspace options in your local area. These tend to be good for networking and collaboration and often have a vibrant atmosphere, which can be motivating. Amenities such as a kitchen and bathroom will be included, sometimes even added extras such as networking events, showers or meeting rooms for hire, so you might be able to meet with your clients or your team.
•       Cons: If you’re the type of person who needs a lot of quiet, they can be noisy and distracting. You also lack privacy for confidential calls and depending on the sense of community, or lack thereof, can sometimes feel impersonal. You may also have restrictions on whether you can host meetings, depending on the facilities available.

4. Serviced Offices:

•       Pros: Serviced offices provide a professional environment and flexible agreements – although watch out for the small print! Amenities such as meeting rooms, a kitchen, and reception are usually included. flexible agreements and You are well set up to host client meetings and share a workspace with your team members. There is also the added bonus of networking with other business owners.
•       Cons: Much like co-working spaces, they can be noisy and are obviously less customisable than a leased space. There may also be limitations on after-hours access.

5. Leased Commercial Premises:

•       Pros: This is the most professional setting for your business, providing a dedicated space for focus, team collaboration, and a platform to showcase your brand. You are fully in control of the experience of your team, clients and suppliers when they visit you. You are also able, subject to the conditions of your lease, to customise your space to suit your needs as a business by creating different areas within your space, to meet different requirements and ultimately to deliver greater value to your bottom line.
•       Cons: Of course, this is a much larger investment and long-term commitment, but that’s where I come in, as your independent commercial property adviser. If taking on commercial premises is on your radar, please do get in touch.

 

Ultimately, the best workspace to support you and your team to do your best work depends on your business needs, your individual preferences and the type of work you deliver. When making your choice, consider what kind of environments would support you and your team to concentrate, collaborate and connect best, and remember, it may be more than one type of working space.

 

If I had a pound for every time I’ve heard this phrase, I’d be a very wealthy man: “Paying rent is money down the drain – I want to buy a building to put my business in”. Many a business owner has crossed my path determined to purchase a commercial premises for their business rather than lease one. Whilst on paper this might seem like a better option longer term, of course, it isn’t quite as simple as that. For one, you may very well never actually ‘own’ the building.  There are several ways to structure this “purchase” and the differences are about tax efficiency and finance.  You may control the property but never be the legal owner.  Curious? This blog will raise some questions in your mind and help you answer them.

 

1 What do you really want? 

The first question to consider is why you really want to own your premises. Is it about the business or about you? It’s important here, to separate your own wants and needs (investment aspirations) from what your business needs. The reality is that whether you own or lease, there’s very likely to be no difference for your business – it will pay rent to a landlord. This might be the business owner’s pension fund or another entity. Notionally then, you become both the tenant and the landlord. Then, when things change (as they tend to) it gets complicated! You could end up with competing priorities i.e. the financial health of your pension vs the financial health of your business.

 

2 What happens if/when your business shrinks or outgrows the space?

If you decide that your business needs to move, how will you manage that process and find an alternative tenant? You could end up with competing priorities i.e. the financial health of your pension vs the financial health of your business. How will you decide which is a priority and make the right call?

 

3 How long will all this take?

Many business owners expect a commercial property transaction to take a similar amount of time to a residential one. In reality, it can take 3 – 5 years of financial planning and time to get everything set up, especially where a pension fund and bank borrowing is concerned. So be prepared for a lot of documentation and ensure you have all the good people you need, on your team beforehand!  Also, have a sound interim location for your business to trade from, so it isn’t being held back while you undertake this important structural change.

 

4 Are you prepared to still not ‘own’ your premises?

If you are using your business as a tax-efficient, personal investment, then the pension fund will own the building. Whilst this is very tax efficient, you don’t own the building – the pension trustees do. Your business still pays rent, but to the pension, with you as the beneficiary.

 

5 What happens when company directors retire?

If you own a building and you’re the director of your business, things are pretty straightforward. if the directors of the company are also the joint owners of the building, also, happy days.  

 

But what happens when a group of company directors, who each own a share of the building (possibly within their pension pot), retire? The directors of the original business and the directors who own the building, will eventually become two completely different sets of people with completely different expectations and motivations from when the whole scenario was set up. This is why taking a long-term view of ownership is key – don’t just think in terms of 10 years, but 25, or even 50! This happened to a client of mine – the directors of the holding company actually decided to sell the building and for complicated reasons the business has had to move out! If this has raised more questions for you to think about and you’d like a handrail through the whole process, I am here to help.  I’ve been that handrail on many occasions and although each time it is a unique set of circumstances, the principles remain the same.

 

As always, if you need support making the right commercial property decisions for your business, then let’s have a chat and discuss your options. Click here to book a call https://calendly.com/talk-to-jim/30min

As your business grows and changes over time, you are likely to reach a point where you need the right commercial property and lease not just to facilitate your day-to-day operations, but also to add value to your business overall. If you cannot make adjustments or negotiate on your current premises lease, the only option might be to leave. While exiting a commercial property lease early in the UK can be tricky, there are a few options you, as the business owner, can explore:

 

Break Clause:

• This is your most straightforward option if it exists in your lease and provided the timing is right.  Within a commercial property lease, a break clause is an opportunity (usually on a specific date), to bring the lease to an end, before the original expiry date. Break clauses are often complicated by conditions, for example rent payments being up-to-date, the property being vacant, or fulfilling any repair obligations specified in the lease. These conditions must be precisely complied with.  It’s a complicated business with many pitfalls for the unprepared or unadvised.  For those reasons, it is often overvalued and overused.  You pay a penalty actual or implicit and many more go unused than are used and hence it may not be your best option.

Alienation

• Another option available to you, should you need to exit your lease, is to try finding a new tenant to take over the remaining lease term. The ‘Alienation’ section in your Commercial Lease should lay out your rights to sublet and assign – this is a key lever to ensure future flexibility for your business. An alienation clause in a commercial lease allows you to sublet the premises in the future, potentially giving you the flexibility to find another tenant to take on your existing premises and relocate to somewhere new that better suits your needs. However, you remain liable as tenant of the ‘Head Lease’. What people miss is the difference between subletting and assigning. In assignment, the original tenant transfers their entire remaining interest in the lease to a new tenant, substantially lowering but not removing completely, their liability. This involves getting the landlord’s consent, as they’ll likely want to vet the new tenant’s financial standing. Again, familiarising yourself with the alienation clause in your lease is key here – what are the conditions and terms you need to abide by?  Is there an alienation clause at all?  Sometimes it gets left out.

Negotiated Surrender:

• You also have the option to approach your landlord and discuss surrendering your lease early – in effect, tearing it up.  It may not be as difficult as you imagine, if for example, the landlord has a reason to want the space which you occupy, to offer to another business.  There may be compensation and be prepared to negotiate.  See it from the landlord’s perspective. If you really need to leave, you need to ensure there is something in it for them, to ensure they say “yes”.

Renegotiation

• This may surprise you, but you can often negotiate a new lease on favourable terms with your current landlord. Remember, they are only human too! Assuming you have been a good tenant and if there’s a danger your commercial premises might remain empty on the open market, your landlord may be happy to keep you as a tenant.  Remember always, that there needs to be a win on both sides, so again, try to see it through the landlord’s eyes.  What do they want out of it and what can you ask for, that the landlord will be prepared to give.  Lease terms that are more in your favour? As the old saying goes: If you don’t ask, you don’t get!

 

Which one is right for you?

As always, I advise that your lease should only ever be as long as you can forecast your business growth, into the future! So whilst a break clause might seem like an obvious option to exit your lease and cover your bases should things change in your business, it’s not always the most useful and it always comes at a cost, added to which you do have other options available to you as we have explored in this blog. 

 

If you’re considering a commercial lease exit, the most important action you can take is to ensure you understand your rights and obligations. I have many resources in the form of blogs and videos on this website to help you do that. Or of course, if you’d like to discuss it with me, please do get in touch.  I would love to support you to get the right premises on the right commercial terms, to ensure your business has what it needs to thrive.  Often with this sort of negotiation, you only get one shot and to get a flat “no” from your landlord, can be disheartening, not to say damaging to your business.

“Heads of Terms” is a document setting out the fundamental agreement between a landlord and a tenant and is the precursor to the lease itself. At this point, they are not legally binding but serve as a crucial stepping stone towards finalising the lease.  Many estate agents will send you the Heads of Terms and say ‘please sign here’, implying that it is a fait accompli, but in fact this is your opportunity to make changes. This is your opportunity to negotiate and create something that works for you.

 

The reality is: If It’s important to you and your business but it’s not in the Heads of Terms, it won’t be in the lease. And if it’s not in the lease, you can’t rely on it later on! Whatever you do, don’t accept ‘oh yes that’s fine’ verbally when you discuss additional requests. If it’s not documented in black and white, essentially it doesn’t exist.

 

Having supported hundreds of businesses to get the right premises on the right commercial terms, what I’ve observed time after time is that you – the business owner – so often don’t know what you don’t know about commercial leases. After all, there is a lot to know! As you won’t necessarily realise what’s wrong, what you can change, or what’s missing, I’ve created this blog post to give you a grounding in the basics and draw attention to some of the options you have available to you to negotiate on your Commercial Lease. Good luck!

 

Property

This might seem obvious at first glance: this is the address of the property. However, one of the most common flashpoints can be the postcode. Whether you ask the rating authority, post office and land registry, you could have up to 3 different postcodes! It pays to check that the correct one is on your lease agreement.

 

Measurement

Also under the heading of Property, it’s important here to check floor area vs usable space. These might differ depending on the pitch of your building’s roof, for example, where floor space under a low roof becomes unusable. Check whether the property has been measured according to the RICS code and this will give you a clue. Also ensure the service charge is similarly accurate if it is based on floor area – this could be a potential bust-up point later down the line!

 

Parking

In my experience, parking on industrial estates is always problematic and a potential flash point. You need to check the extent of the property that is for your exclusive use and any “shared” areas. Check if the area or industrial estate has double yellow lines, for example. How will you protect or enforce your own parking? One of the landlord’s obligations is “Quiet enjoyment” – which means you should be able to use the property for the use intended. Where you have repeat offenders, say, parking on your premises, you can ask your landlord and it would be their responsibility to take action.

 

Tenant

This might also sound obvious, but there’s more to it. Will this tenant be a ltd company, a group of people or an individual? If you are in a partnership, what happens if you end the working relationship with your partner? If it’s a limited company, it needs to have a track record of at least 3 years of accounts of net profits 3 times the previous years (the institutional test) for the landlord to agree. If this is not available, they might ask for secondary security eg a rent deposit or a personal guarantee. A rent deposit is a separate deed that says the tenant must pay X months’ rent + VAT. Once the tenant can pass the institutional test, the deposit needs to be paid back to the tenant – otherwise, it might be held for the full term of the lease.

 

Landlord 

Who is your landlord? You need to know if it’s an individual, a partnership, or a limited company. Are they local and if so, will you get the chance to meet them? How invested are they in your business? Do they own a portfolio of businesses? Or is it a hedge fund or financial institution that has outsourced the management to a massive service company? In that case, you likely won’t see the same agent twice! There are pros and cons to each: a large institutional landlord will be clear on regulations and compliance, but private individuals might not know about all the rules and regulationss e.g. gas safety test. A large institutional landlord might be less open to negotiation but a private individual might meet with you and there might be a chance to build an ongoing relationship.

 

Lease length

How long should a commercial premises lease be? Rather than asking the agent how long the lease is, ask yourself how long your lease should be to best support your business. The truth is: the landlord is always going to go for the longest they can get away with, but as a business owner you are in a position to offer a proposal of a lease length that works for you. You might also not realise as standard you have Security of Tenure from  The 1954 Landlord & Tenant Act. This means a landlord may not tip a tenant out without proper reasons, such as breach of lease, continual non-payment of rent etc. You can contract out of the 1954 Landlord & Tenant Act, but itneeds to be in black and white and you’ll need to sign a declaration that you have read and understood. If you take a short lease this is not as important – so you can always concede this as a bargaining chip!

 

Rent

What is the landlord’s financial position and main motivation? They might try to incentivise you – e.g. by offering rising rent or a rent-free period. The important thing for you to know is why. For example, if the landlord has just spent a lot of money on the building, cash flow will be important. As the tenant you will pick up insurance, business rates and service charges – so even during a rent-free period, there is a significant financial benefit to the cash-strapped landlord.

 

Break

A break clause enables one or other or sometimes both parties to bring a lease to an end, usually on a specific date and subject to quite often stringent conditions, one of which is a written notice. The trips and traps in a break clause are the subject of an entire blog post. But, ask yourself or your business plan, do you actually need a break clause? Are you using it as an emergency parachute because you’re not confident in your business plan? Or are you planning to use it wisely, i.e. to coincide with a contract ending in your business?  Consider what you are giving away elsewhere in the Heads of Terms, to have that break option you are unlikely to use.

 

Repair 

This often catches people out as it is least well understood. The first line typically says the tenant shall keep the property in ‘good tenantable repair.’ This may sound innocuous but the bit that is missing is the word ‘put’, and in law, it is implicit. After all, you can’t keep something in good and tenantable repair unless it is that way in the first place! The way around this is to insist on a ‘Schedule of Condition’ before you move in, so you are only liable to hand the property back in the condition it is in, when you take it, and as set out in your lease. 

 

Insurance

Ask to see the last 3 years’ premiums so you get an idea of what your financial commitment is going to look like. You also need to know what might be excluded e.g. things like flooding. Have a look at the building and consider what’s out of the ordinary. Remember: the landlord won’t want to take on responsibility for anything not included in insurance and will put that back on you.

 

Service charge

How much has it been for the last 3 years? What does it cover and not cover? Ensure the service charge is administered in accordance with the RICS code for service charges. Transparency is key here, for example what counts as repairs and maintenance vs what is development (for which the landlord should be responsible). This becomes more complex for a multi-occupancy building – you’ll need to check whether there is a sinking fund for major items.

 

Alienation

Ensure you have the usual rights to sublet and assign – this is a key lever to ensure future flexibility for your business. I see far too many leases with no alienation rights at all and this, in most cases, is a red line for me advising a business owner. An alienation clause in a commercial lease allows you to sublet the premises in the future, potentially giving you the flexibility to find another tenant to take on your existing premises and relocate to somewhere new that better suits your needs. However, you remain liable as tenant of the ‘Head Lease’. What people miss is the difference between subletting and assigning. In assignment, the original tenant transfers their entire remaining interest in the lease to a new tenant, substantially lowering but not removing completely, their liability.

 

Statutory regulations 

The principle here is that you will have an obligation to comply with current statutory regulations and those that come into force in the future. For example, if in 3 years the fire regulationss change such that your internal doors comply, you’ll be obligated to replace them and bear the cost. However, if the doors don’t comply the day before the lease is signed, it’s on the landlord. But if it’s not picked up beforehand, it’s on you as the building is in breach of regulations AND your lease. The answer? Ensure that the building complies with all current regulations before the lease is signed.

 

Signage

Ensure you have your landlord’s consent to signage on the exterior of the building, especially if it’s important to the marketing and awareness of your business that your brand is highly visible.

 

Consent to alter 

Do you need to make any alterations to the premises? If so you will be required to provide a schedule of works to gain your Landlord’s consent.  Once the lease has begun, you will be paying for consent.

 

Legal costs

This should say that each party is responsible for its own legal and associated costs. It’s up to you to ensure it’s clear if the expectation is different. You might be surprised, but I see all sorts of variations on this.

 

Agreement for lease

You can request an ‘Agreement for Lease’ to be put in place so that any alterations can be planned for and prepared. This is a preliminary document used in commercial property transactions, which serves as a crucial stepping stone before entering into a formal lease agreement.

 

Lease commencement 

Ideally, the date should be as soon as satisfactory planning consent is determined. A watch out here: the date of the lease is not the same as the lease commencement date.

 

Rent commencement

This is usually six months following completion and should include a summary of the expected total rent in Year 1. This might differ from the lease commencement date depending on what is agreed, so ensure your dates are all accurate and as expected.

 

What next?

Having read this blog you should have a good understanding of the Heads of Terms. In theory, you could now carry out your commercial property search and lease negotiation yourself. However, it’s important to remember the agent in any property transaction is acting on behalf of the landlord – and they do this sort of thing every day so they know the Heads of Terms on a lease like the back of their hands. So, they won’t be telling you anything that might prejudice the outcome for them. 

Ideally, you need experience and understanding equal to theirs, to level the playing field and get the best outcome for your business. Whether it’s an upcoming rent review, extending a property lease, or just a feeling that your existing premises are holding your business back, my knowledge, experience, and services can help you secure the right commercial premises on the right commercial terms. To find out more, get in touch for a free informal chat.

What to think about when buying a business

Buying a business can certainly be an exciting and rewarding venture. Not only does an established business already have a customer base, reputation, and brand recognition in the market, but you have the potential to generate income from day one, helping you to recoup your investment faster. Of course, it’s not all rosy – there are also risks involved in buying an existing business. For example, you need to carefully evaluate the business’s financial health, management team and future prospects, before committing. In this blog we take a look at some of the most important things to consider when buying a business, to help you mitigate your risks and make the right decision for you.

Scope out the market.

First off, you need to thoroughly research the industry and target market of your potential new business. Which industry trends or market shifts might have an impact on your target market and ultimately, your business? Where is your growth potential and which competitive dynamics do you need to be aware of? Assess the business’s position within its industry, along with its ability to adapt to market changes and to attract and retain customers.

Money matters.

Before you hit the go button, the next area to look at is the business’s financial statements, including income statements, balance sheets, and cash flow statements. Take time to review these with a fine-toothed comb – this is your opportunity to understand the business’s profitability, financial stability, and ability to generate cash flow. This will also help inform the business valuation and ensure you are only paying fair market value. What are the business’s debt obligations, outstanding liabilities, and potential legal or tax liabilities? Get the right figures together and then weigh up whether you have the financial resources to support the business’s future operations and growth plans.

Evaluate Efficiency.

Next stop is to understand the current business systems and processes, including its sales, marketing, operations, and management systems. Your job is to assess the scalability and adaptability of these systems – are they robust enough to support future growth? Alongside this, take time to review the skills, experiences, and morale of your new workforce – including the management team. What is staff turnover like? What values does the business have and do they align with yours?

Assess Your Assets.

As part of your due diligence, you must ensure your new business has clear and undisputed ownership of its assets, including real estate, intellectual property, and equipment. To avoid future heartache and cost, it is essential to address any title or property issues before finalising the purchase. What many business owners I speak to don’t realise is that inheriting a lease is much like buying a second-hand car. You can look ‘under the bonnet’ of your commercial lease, but without expert knowledge of the ‘mechanics’, you may not necessarily understand what you are looking at. 

Boxes ticked. Where next?

As well as these areas, you’ll need to ensure you’ve ticked all the boxes in terms of legal and regulatory concerns and carried out a thorough risk assessment. Remember, whilst buying an existing business represents a fantastic opportunity, it is a significant decision that you need to feel confident going into. Take the time to conduct thorough research and carefully assess the risks and challenges involved. I would also urge you to engage qualified professionals where needed. The more visibility you have upfront the better – getting a clear picture of your potential business, warts and all, will hugely increase your chances of making a successful investment and building a thriving business in the future. For support on commercial premises leases specifically, please drop me an email or book a free chat.

 

If you’re entering into a new commercial lease on your premises, whether it’s for a business relocation or a renegotiation on your current building, the question often arises: how long is the lease? Herein lies an innocent mistake I see a lot of business owners making: asking the agent how long the lease is, rather than asking themselves “how long should my lease be to best support my business?” The truth is: the landlord is always (generally) going to go for the longest they can get away with, but as a business owner you are in a position to offer a proposal that includes a lease length that works for your business. So how do you answer that all-important question and uncover the right lease length for your business? The answer lies in your business plan.

 

Back in the 1980s, it was much more typical to have a 25-year lease without a break clause – that’s the way the market operated. So if things changed in your business and you needed to get out of a lease, your only option was alienation, where you pass on part or all of your premises to someone else but remain as guarantor. Over a length of time like 25 years, you can imagine some of the chains of people I found, making use of their alienation clause to sublet to someone, who sublet to someone else, ad infinitum!

 

These days, typical lease terms are much shorter. In my work, I tend to see a 5-year lease with a break after 3 years, most commonly. With a shorter lease, a break clause and alienation clause, business owners have many more alternatives open to them, should their business circumstances and thus their requirements for premises change.

 

I always say, the length of your commercial premises lease should align with how far into the future you can see the size and shape of your business. Depending on your industry, you might be reasonably sure of stability for the next 10 years, or conversely, if you are in a market that is going through rapid change, you may only be confident of how things will look for the next 12 months. The key is to ensure your business has what it needs right now and that any lease you take on allows you flexibility at different points in the future where you think change could occur.

 

Here are some factors to consider:

 

• Certainty vs uncertainty e.g. market changes, global finance markets, and industry movements. How much change can you envisage and what impact could that have?
• The convenience economy – the sad fact is that customers are increasingly less likely to be loyal to a chosen brand and are obsessed with the idea of getting a better deal. How much of this can you mitigate?
• Risk – how much risk is inherent in your industry, product and/or service? How can you mitigate your risk, for example via building multiple income streams rather than just one or two
• Growth – how rapidly is your business going to grow? What will influence that growth?

 

If you are relocating or taking on a new commercial business premises, please book in a free informal chat or drop me an email – I’d love to help you find the right premises on the right commercial terms for your business or just help you with the way you think about and see premises as part of the overall business.