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12 things every retailer should do before signing their lease

Monday, September 29, 2014

Deciding to open a new shop is a major financial commitment, with significant outgoings. Before you sign the lease for your new premises you need to consider the following:

  1. Have you checked the payment frequency of your rent/fee? – is it weekly, monthly, quarterly; in advance or in arrears?  If your business can only support payments monthly in advance, ask the landlord, as often they will agree to this. 
  2. Have you negotiated on the rent? - Research other rents and look at whether you will have any disadvantages compared with other shops close by, such as:

    Is your sales floor split level?
    Is your lease going to be longer than the standard
    Is your shop set back from the others?

    Your rent will be used as evidence against other businesses when they have a rent review or lease renewal, and vice versa.  If tenants don’t negotiate, it can result in a vicious circle of ever-increasing rents that can be damaging to local economies.
  3. Have you asked for a rent free period?  The longer the lease, usually the longer the rent free period granted.  These are more likely to be granted if there are repairs necessary to the shop before you can fit it out, or where the property has been vacant for a long time.
  4. Who is responsible for insurance? –What about the plate glass in the shop front? What about buildings insurance?  If you take on a pop up shop it may be that these costs are included in the rent, but a lease may state that you are responsible.
  5. Have you agreed a ‘schedule of condition’? - Agreeing one limits your liability so that you do not have to put the property back into any better state of repair than it is at the start of the lease.  A small outlay could save you thousands of pounds at the end of the lease.
  6. Does your lease specify the use that you want?  Do not rely on what the landlord says; it is what is in the lease that matters.
  7. Is your 'use' allowed under planning permission? This is different to the use in the lease, so make sure you can operate under planning legislation.  Even if it says you can under the lease that is no guarantee that you can under planning law.
  8. Have you checked that you are able to make alterations? Make sure there is a provision in your lease allowing this, particularly if they are extensive. This should all be included in your lease.
  9. Will you be able to assign or sublet the lease? Your circumstances may change over the term of the lease so this provision will make sure you have increased flexibility. Otherwise you end up committed to a property that you no longer need, for the remainder of the lease.
  10. Do you have to pay a service charge? If there is a service charge, make sure you will benefit from those services, and if you won’t, don’t agree to that part of it.  Try and agree a cap on the level of service charge to minimise your outlay.
  11. Don't forget to budget for business rates. Check if you eligible for small busin ess rates relief and consider if it is worth appealing as the valuation may be too high.

    You can call the RICS Business Rate helpline on (0)24 7686 8555 for a free 30-minute consultation.

  12. Will your lease contain break clauses?  These can be notoriously difficult to exercise if you don’t comply with the conditions. Make sure that you get expert advice on what the break clause conditions should be and get those agreed before signing the lease.

The sooner you engage with a chartered surveyor, the better chance you will have of negotiating  not only the best rent, but also the best lease terms, saving all the time, expense and hassle of disputes at a later date. 

You will still need a solicitor to complete the lease, but they will not inspect the property, so won’t know if the property needs repairs.  They also will not have the skills to best advise on the rent you should be paying or on any clauses that have an impact on rental value.

Download the RICS Small Business Property Guide for comprehensive advice on common property decisions and actions you may need to take - from acquiring a lease to challenging a dilapidations claim – along with vital property-related issues such as valuations, planning permission and the business rates system.

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Kirsty Harvey MRICS is a chartered surveyor with 20 years experience of advising retailers and other businesses on landlord and tenant issues.  KTD Surveying specialises in strategic advice for lease acquisitions, rent reviews, lease renewals and property and estate management.