Business, commercial property faqs

Commercial Property - FAQs

 

If we only accept a short lease, will we be forced to move our business premises at the end of that period?

The Selling Agents Particulars state that the property has 'B1' use: what does this mean?

I am passing my leasehold premises to the buyer of my business. I have been told that I will have to act as guarantor to the buyer. This seems totally unreasonable: is it correct?

Is VAT payable on the purchase price?

Is VAT payable on the rent?

The Lease states that the Tenant is to repair the premises but surely the Landlord cannot insist the Tenant is responsible for items of disrepair which were present at the date of the Lease?

Can the Landlord stop the Tenant selling the lease?

How much will it cost to acquire a commercial property (additional to the purchase price or rent)?

How is Stamp Duty calculated on rent?

What payments other than rent is a Tenant obliged to make?

How often should the rent be reviewed and which party decides how much it should be?

My company wants to install a telecommunications system in the new premises - are there any permissions we need?

My company is obtaining a loan to buy premises - will the Bank deal with all the paperwork?

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If we only accept a short lease, will we be forced to move our business premises at the end of that period?
 
It depends upon the terms agreed with the Landlord. Generally, a business lease automatically. A business lease automatically continues after the expiry of the contractual period until it is brought to an end by either party serving a notice in a prescribed form. The tenant has a statutory right to ask for a new lease and there are only very limited grounds upon which a landlord can regain possession of the premises.
 
It is becoming more common practice, particularly with short leases, for tenants to agree to waive their right to an automatic extension.  You should always seek legal advice before agreeing to waive any of your legal rights under a lease.
 
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The Selling Agents Particulars state that the property has 'B1' use: what does this mean?
 
The proposed use of any premises - freehold or leasehold- must be authorised under planning legislation. Where there is to be a change of use, planning permission must be obtained. However an application for planning permission does not need to be submitted where the change is within a category or 'class' of the Town and Country Planning (Use Classes) Order 1987. These classes are often adopted in practice and B1 includes, for example, uses as offices which are not primarily open to visiting members of the public.
 
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I am passing my leasehold premises to the buyer of my business. I have been told that I will have to act as guarantor to the buyer. This seems totally unreasonable: is it correct?
 
If the Landlord's consent to the assignment of the lease is required it is likely that the Landlord will be able to insist that you enter into an 'Authorised Guarantee Agreement'. This is an agreement whereby you promise to pay the rent and perform the covenants if the incoming tenant fails to do so.
 
The provision for such a guarantee has become standard practice in leases granted after 1995 and a Landlord may be able to argue that such a guarantee should apply to a lease granted earlier. Such guarantees place the onus upon the outgoing tenant to ensure the landlord has a tenant of equal creditworthiness as at the original date of the lease.
 
This guarantee only lasts whilst the incoming tenant holds the lease and automatically ceases when that tenant assigns to someone else.
 
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Is VAT payable on the purchase price?
 
Generally this will depend upon whether the seller has elected to waive the exemption from Value Added Tax. If so, VAT will be payable in addition to the purchase price although the buyer may be able to reclaim this sum if VAT registered.
 
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Is VAT payable on the rent?
 
This will depend upon whether the landlord has elected to waive the exemption from Value Added Tax. If so, VAT will be payable in addition to the rent although the tenant may be able to reclaim this sum if VAT registered.
 
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The Lease states that the Tenant is to repair the premises but surely the Landlord cannot insist the Tenant is responsible for items of disrepair which were present at the date of the Lease?
 
Liability for repairing the premises depends on the wording of the lease. For example, an obligation to "keep the premises in repair" means the premises must be first put into repair (taking into account the age, character and locality of the premises) and then kept in repair. This could involve the Tenant in repairing damage which occurred prior to the start of the lease. A Tenant wishing to avoid this should seek legal advice as to the wording of the lease and may be advised to have a 'Schedule of Condition' prepared or even photographs taken to record the condition of the property on the day the lease was granted.
 
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Can the Landlord stop the Tenant selling the lease?
 
Unless the Landlord specifically restricts a Tenant, the answer is 'No'. Invariably a Lease will include a restriction and the words of the lease are strictly interpreted. Usually any dealings with part of the premises (as opposed to the whole) are prohibited. Often, sub-letting will only be allowed in restrictive circumstances (a Landlord must ensure that if the head-Lease comes to an end, a sub-Tenant's occupation will not be detrimental to the Landlord's interest). A Lease will often prescribe the circumstances in which the Landlord may refuse consent (for example, if the new Tenant is not of equal financial standing).
 
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How much will it cost to acquire a commercial property (additional to the purchase price or rent)?
 
Apart from your solicitor's fees and VAT, there will be some additional expenses just as there are when buying a home. There will usually be fees for making enquiries/searches of the local authority, companies house etc. There may registration fees (if a company is entering into a mortgage or if the property is freehold or held on a lease over 21 years). There may be VAT and Stamp Duty to be paid. Stamp Duty is payable on the purchase of a freehold property at the same rates as domestic property: it is also payable upon premiums paid under leases and on any rent.
 
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How is Stamp Duty calculated on rent?
 
It is based on the average annual rent taken over the length of the term. If future rent cannot be ascertained at the outset (for example, where the rent is to be reviewed in line with the prevailing open market), then such increases are ignored for this purpose. Unless the Landlord has promised not to waive the exemption from VAT at a future date, VAT is added to the average annual rent and stamp duty is calculated according to the annual rent payable and the length of the lease.
 

 

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What payments other than rent is a Tenant obliged to make?
 
The Lease must be read carefully to check what financial commitments are involved. Usually the Tenant is obliged to pay towards the insurance of the building and if the premises form part of a larger building, the Tenant will most likely have to contribute towards the maintenance and running of that building. This latter cost is often collected by way of 'service charge' and should be thoroughly investigated before a Tenant signs a Lease as such a variable cost could drastically affect the profitability of a business.
 
The financial implications of other obligations e.g. to repair or display signs etc should not be overlooked.
 
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How often should the rent be reviewed and which party decides how much it should be?
 
The frequency of rent reviews depends greatly on the state of the property market and the economy at the time the lease is granted, as well as upon the trend within comparable leases in the locality. Both parties should obtain the expert opinion of a valuer.
 
The method of determining the new rent needs to be set out within the lease. Often parties first mention the Retail Price Index but although this will keep the rent in line with inflation, it does not relate to property values. Most frequently rent reviews aim to impose the open market rent prevailing at the time of the review and so the arbitration services of a valuer will be engaged. The precise terms or factors to be valued also need to be set out clearly, for example, are tenant's improvements to be disregarded?
 
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My company wants to install a telecommunications system in the new premises - are there any permissions we need?
 
Planning permission may be required depending on the nature and location of the building and the nature of the works.
If the installation requires access over adjoining property or the laying of cables etc, the freehold title or lease should be checked carefully to ensure suitable rights have been acquired.
 
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My company is obtaining a loan to buy premises - will the Bank deal with all the paperwork?
 
Not necessarily. Often the Bank will appoint solicitors to act on their behalf (they may ask you own solicitor or may appoint a third party with whom your solicitor will liaise). A Bank may well want the loan to be secured on the property requiring the company to mortgage the property. If so, the Bank will want to check the legal title and results of searches.
 
Depending on the negotiated terms, the Bank may require the company to give a Debenture to secure the company's borrowings, possibly backed by a director's guarantee. The Bank may deal with this or ask the solicitor to do so for them.
 
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