Thinking of Taking on a Business Lease?

If you are thinking of taking on a lease of business premises, what factors should you be considering? Here are a few helpful tips:

• Get a survey. If you were buying a house, you wouldn’t think twice about getting a survey done. It is no different for business premises. Most business leases are what’s called ‘fully repairing and insuring’ - in other words, the tenant is responsible for repairing and insuring the property. By having the property surveyed, you will know right from the start what your liabilities are likely to be.
  

• Service charges. You may well be asked to pay a service charge as a contribution towards the upkeep of common areas if you are sharing a building with other tenants. Get as much information as possible about how much has been charged in the past and whether there are any plans to increase these in the future. Service charges can often amount to a significant extra on top of the basic rent.

• Disposability. Check that you can get out of the lease if you need to. Unless there is a break clause, the only way out may well be to transfer the lease to someone else or to sublet which means that you will remain on the hook to the Landlord.

• Security of tenure. Business tenants have a statutory right to renew their lease when it comes to an end in order to protect the continuity of their business. Check to see if the Landlord is seeking to exclude these rights which can only be done with the tenant’s consent.

• VAT. Most leases will be exclusive of VAT. This means that the Landlord can charge VAT on the rent. You must therefore ensure that you are VAT registered in order to be able to reclaim any VAT paid on the rent.

• Stamp Duty Land Tax (SDLT). Broadly speaking, unless your total rent or any premium is below the tax-free threshold of £150,000, you will be liable to pay SDLT which can be a considerable sum particularly if you have a long lease at a high rent. If VAT is paid on the rent, then it will also be taken into account when calculating the SDLT payable.

• Registration. If your lease is over 7 years or has more than 7 years left to run, it will need to be registered at the Land Registry. Even if your lease is less than 7 years long, if there any rights contained within it such as the right to use a car parking space, then these rights will also require registration.

And perhaps the most important tip is that you should always seek professional advice!

Michael North and Deepak Gupta