Stephen Payne of London landlord and property developer, SEGRO, highlights the key costs associated with a commercial lease:
"Agreeing a commercial lease with a landlord can be complex, so it is important to understand all the associated costs before signing the lease.
Firstly, when agreeing the terms of your lease with your landlord, ensure to clarify when and how they expect the rent to be paid. In most cases, rent will be paid quarterly, in advance, by a direct debit mandate. Rental payments can also be paid via BACS payments, standing orders or cheques. In certain circumstances, landlords may accept monthly rental payments.
As part of the lease negotiations, you may be required to provide a rental deposit. The amount required will depend on the strength of your business. This should be securely held by the landlord for the duration of your occupancy or until your company accounts meet certain criteria.
The second largest outgoing when renting a commercial property is likely to be your business rates, which is a local tax paid by occupiers of all non-domestic/business property in England and Wales. It is a tenant’s responsibility to investigate the rateable value of a building, which can be done through the Valuation Office Agency. Bear in mind that rates are reviewed each year to reflect changes in inflation.
Along with your rent, your service charge will need to be paid to your landlord on a quarterly basis. It is important to check what this includes when agreeing your lease. For example, does the estate benefit from security? Who is responsible for maintaining the estate’s roads and landscaping? It is advisable to request a copy of the last three years’ service charge accounts so you can see the levels of expenditure. It is also important to enquire about future expenditure or major maintenance or development projects, as this can increase In respect of insurance, the landlord will usually insure the structure of the unit and then recharge this back to the occupier at the start of each year. The tenant is usually responsible for insuring the contents and business disruption cover.
With regards to utility payments, it is important to identify the suppliers when moving into the premises, as tenants are generally responsible for these costs. As with residential properties, it is also crucial to take meter readings when initially moving in and then again when vacating the premises, in order to supply accurate measurement for billing.
If you take a Full Repairing and Insuring lease (FRI), you will also be responsible for upkeep and repairs of the property and will be liable for covering the costs of remedying areas of disrepair at the end of the term. You can attempt to limit your repairing liability by having an agreed schedule of condition, a document which highlights areas of damage or disrepair using photographs that is agreed by both parties before the start of occupancy and attached In addition to the costs outlined above, it is important to consider VAT, as this is chargeable on all rental payments as well as service charges. Other cost implications to consider include health and safety regulations, such as an asbestos register or fire certificate, as this may need to be budgeted for.
Overall, in order to avoid unexpected charges when renting business space, it is advisable to be clear on total occupancy costs before signing a commercial lease. Any reputable landlord should be able to advise you on all associated costs."
SEGRO’s London assets are located across more than 60 estates and clustered around the key Heathrow, Park Royal and Greenford markets and in and around the M25, M40 and A40 corridor. To find out further information about SEGRO, please visit www.SEGRO.com, or contact SEGRO’s customer services on: 01753 537171.