Frequently Asked Questions
What is a freehold?
Freehold gives the purchaser complete ownership of the land and all the buildings on it. A freehold gives the buyer the right to do as they like with their property, subject to the law and planning controls. Any property that is freehold - or in the case of a flat has a share of the freehold - is likely to be more valuable.
What is a leasehold?
A leasehold property is leased from the freeholder for a specified period of time. The lease usually includes a range of terms and conditions, specifying the leaseholder's responsibilities to the property and the freeholder.
Leases can be long or short term - a long-term lease, for example 999 years, is likely to be in demand from someone looking to buy a property for their business to mature as a long term investment for their SIPP (Self Invested Pension Plan). A short-term lease, say, for a few years, means the property is effectively being rented.
It is sometimes possible to extend the length of a lease or buy a share of the freehold - a process known as enfranchisement.
What is a full (or internal) repairing and insuring lease?
It is normal practice that when agreeing a commercial lease that you enter into an agreement under which you are responsible for the repairing and maintenance of your premises. You will be obliged to keep the premises including structure in good repair and condition and to redecorate the property at regular intervals.
If you are occupying a multi occupied building, for example a floor within an office block or a shop within a shopping precinct or with upper parts, then the landlord will either manage the property in-house or employ a managing agent and charge a service charge apportion to the amount of building you occupy to keep the external and common parts not including your demise in good, clean condition.
The landlord is under obligation to insure the building and will reimburse the costs for the insurance from the tenant(s). Therefore if the building suffers damage for example from natural causes then any repairs will be covered by the building insurance. If a building is old and has clear need of long to medium term repairs, then it is common for both tenant and landlord to enter in an Internal Repairing and Insuring Lease.
It is also common practice for the tenant and landlord to agree a photographic schedule of the premises to attach to a lease before a lease is signed. This gives evidence of the original condition of the property to minimize dilapidations disputes at the expiry of a lease. The cost for a photographic schedule is usually paid for by the tenant.
How much rent and deposit or security would I put down when taking a lease?
Rent is usually paid quarterly in advance (every 3 months, the usual quarter days falling in March, June, September and December). When completing a lease your first quarters rent will be apportioned to the following quarter date minus any rent free that you has been agreed in the original negotiations.
You will usually have to pay a deposit on completion which is held in a separate client account or ESCROW account. This deposit is returned at the end or break date of your lease. The amount of deposit is determined by the financial strength of your business or organization. The landlord’s agent will research into this by taking up references (2 trade, bank, accountant and landlord) and asking site of the last 3 years profit and loss account. If the business or organization is a start up, it is normal practice to agree a 6 months equivalent rental deposit or a personal guarantee with a 3 month deposit. If a business is very established and can prove that they are in robust financial health then it is possible to not submit any rental deposit or guarantee.
Can I make any alterations to the premises I am renting?
When renting a property by way of a lease you will have the right to make non-structural alterations, for example painting the walls in the colour you desire, putting in the flooring you want and installing partitions. All this work can be carried out under the rules of your lease, which usually require the landlord’s written consent not to be unreasonably withheld. At the end of your lease term the landlord will request you to put the premises back in a state of repair that will make the premises re let again. Notwithstanding the fact that the landlord may agree for you to leave for example partitioned offices or flooring in place if it does not have a detrimental effect on finding a replacement tenant. You may agree to leave some or all of your rental deposit with the landlord at the end of the lease to cover the cost for repairs.
Why do I have a rent review?
If you are taking a lease over a period of time usually exceeding between 3 or 5 years, then it is normal for the landlord to put a rent review date(s) in the lease. Like any goods or services you purchase, prices fluctuate, usually upwards due to the ever presence of inflation. Landlords own the property for investment purposes and to make it a viable investment rents must increase over time so the rental value does not diminish by inflation.
The fairest way for both parties to agree an increase in rent is to set periodic dates for a review of the rent, know as “A Rent Review”. Most rent reviews are negotiated on the phrasing as “Upwards Only”. Subject to market evidence of comparable property, your rent will increase to a market level. If there is no market evidence to prove an increase, then it is usually difficult for the landlord to increase the rent. It is normal practice for both parties; landlord and tenant to employ the services of a rent review surveyor, who has the experience and expertise to negotiate the best outcome for both parties. If a new rent is set after the rent review date in the lease, then the rent difference between the new and old rent is backdated and collected.
If there is no agreement between both parties, then the services of an arbitrator or expert witness is employed to set the new rent.
Can I quit my lease at any time?
A lease is a binding contract for a set time. Like any contract, whether you have a gym membership or leasing a car you are committed to the term of the contract depending on how long that contract is. If you want to vacate your premises you have to do this within the terms of the lease, whether you have to wait to the end of the lease or if you have agreed a break date in your lease.
Most leases will also enable you to assign and/or sub-let your lease to another tenant. This can be done subject to landlord consent, which is not to be unreasonably withheld. The best way to assign or sub-let your premises would be to instruct the services of a commercial agent, who will provide you with initial advice as to what is achievable. In a difficult market you may have to consider some form of capital contribution to give a tenant to take over your lease, or in a very buoyant market you may even achieve a premium for your lease.
In some cases a landlord may be amenable to agree a surrender, this is if they have what they feel is a better replacement tenant in place, or they may see a development angle to add value to the space and need the property vacant.
Although a lease is a binding contract it is always advisable to keep the landlord fully informed as to your plans that affect your tenancy.
Remember that most landlords consider the tenant as a customer and would be more than happy to assist their needs to keep a good landlord and tenant relationship.
Do I need to instruct a solicitor when renting a property?
For the vast majority of commercial property renting you will agree a Lease, it is important that you employ a property lawyer to act on your behalf. Entering into a lease means that you are under obligation to the lease contract and you require legal representation to negotiate the intricate clauses in the lease to ensure they synchronize with the Heads of Terms agreed between the agent and their client, the landlord. Leasing property is similar to purchasing property or land and various searches need to be carried to ensure that you have protection.
What are my business rates payable for the premises?
Effectively this is a local tax on businesses who occupy commercial property. Like council tax a business will be using the local authorities resources for example street lighting, refuse collection and environmental care. The cost of business rates is dependant on value, therefore the size, location and quality are factors considered when evaluating business rates. It is important you establish the Business Rates Payable. On most occasions the agent will quote an estimated cost on the marketing particulars. You can enquire yourself by researching on www.voa.gov.uk, or you can enquire through the local authority where the property comes under. A rating surveyor can also provide you with advice.
How much service charge and building insurance would I pay?
Depending on the extent of the common parts, whether they consist of a passenger lift, communal toilet facilities (where it is the landlord’s responsibility to maintain) and concierge will determine the cost of running the building which is shared between all the tenants within the property. If your requirement is for a high specification space then you will normally pay a higher service charge than if you requirement is for a more basic premises.
In any property that you may be considering leasing, it is essential you are given clear advice on what the potential service charge will be for the forthcoming year. Make sure you understand exactly what is included in the service charge. You should have reference to the RICS Code of Practice on Service Charges, called Service Charges in Commercial Property. Please speak to one of our surveyors for further information on this. The same can be said for Building Insurance. Always confirm with the agent what the approximate Building Insurance will be for that year and whether it is included as part of the service charge.
Can I renew my lease?
In some cases, you may have an automatic right to renew your lease. This is determined by your lease. If the lease has been contracted outside the security of tenure provisions of the Landlord and Tenant Act (1954) then you will not have the automatic right to renew your lease.
If the lease is contracted within the security of tenure provisions of the Landlord and Tenant Act (1954), then you will have the automatic right to renew your lease and the landlord can only deny on 7 grounds, which must be established, set out as follows:
What use permission do I have?
It is important that you are clear as to what Use Class your premises come under. Here is a brief synopsis of what Use Classes are for which use.
The following use classes in England are set out under the Town and Country Planning (Use Classes) Order (1987), and the subsequent amendments: