How to use a commercial agent
renting a commercial property
Some tips on the most effective way of using the services of a commercial property agent for the purposes of renting.
First impressions
In the vast majority of cases the first point of contact someone makes with a commercial agent is over the phone. When making contact it is important to make a good first impression. There are four basic questions a commercial agent is looking to get answers to.
1) Know what you want to do?
Are you looking to open a shop, office, restaurant?
2) What location do you prefer?
Are you looking for a very specific area or is something like parking availability more important than location?
3) What size of premises do you require?
This is usually expressed in square footage or square metres, though if you are unsure of these you can use other comparisons, for example, if you're looking to run an office how many desks/members of staff will be using the premises?
4) What timescale are you looking to open your premises in?
Are you looking for a property as soon as possible? This may determine the method of renting. The key is to be flexible. There is only a limited number of buildings, only so many of them are on the market at any one time, and only so many of them are going to match your requirements.
Property details
If the agent has properties on their books that match your requirements they will be able to send you a marketing sheet on a specific set of properties or a full list of all commercial properties available. Examples of christopher st james marketing details can be found in your folders.
Viewings
once you have received a set of details, usually through the post, if you are interested in a particular property you will want to have a look at the inside. Usually it is best to book a viewing in advance and it is often best to conduct viewings during day light hours. Due to diary appointments it is best to book a viewing a day or two in advance. In most cases the commercial agent will have keys to a property, but often the agent must get permission from the vendor to conduct a viewing and require notice for access, especially if the property is available for sale as a going concern.
Types of let
there are two methods of renting a property that you find through a commercial agent: on a commercial lease, or on a licence.
A commercial lease is the most common way of renting a commercial property. The duration of a lease can run from a minimum of 3 years up to 25 years. The lease grants the tenant exclusive use of the property for a set time period. Your tenancy is protected for the whole period of the lease (unless there is a break clause). Once the lease comes to an end, under the landlord and tenants act the existing tenant automatically has the right to re-new the lease. There are only two circumstances in which the owner of a property can refuse to renew the lease. Firstly is if the landlord wishes to occupy the premises themselves, and secondly if the landlord wishes to re-develop the property. Both these cases are very rare.
A lease is of benefit to you if you believe your business will do well, or if you are certain that you need a premises for a set period of time. The risk involved here is that you are liable to continue to pay the rent for the duration of the lease, even if your business is not doing well and has shut down. Rent on a lease is paid once every three months otherwise known as quarterly. Depending on the references a form of rent deposit is also required, most often in the form of a quarters worth of rent. Because leases can run for a number of years there are almost always rent review dates inserted into the lease which are normally in equal frequency for the duration of the lease. For example, on a 15 year lease there may be 3 rent reviews, once every 5 years, or on an 8 year lease there may be a rent review on the 4th year.
The vast majority of leases are rented out on what is known as a full repair and insuring lease. This means the tenant is liable for the whole or part cost of all repairs made to the building. Before entering into a full repair and insuring lease it is advisable to instruct a surveyor to carry out a survey on the property. If any immediate repairs need to be carried out you can either negotiate a rent free period to compensate for cost of repairs via the agent or your solicitor can draw up a schedule of dilapidations that can exclude specific repairing obligations from the lease.
The other most common way of renting a commercial property is in the form of a licence. This licence agreement is very similar to agreement signed for a short term let on a house or flat. Normally a licence is has a minimum stay period, usually 12 months. Once the minimum period has come to an end the licence is on going on a monthly basis. If the tenant wished to vacate the premises they can give the landlord 1 month notice to quit. In this instance a licence is very flexible for the tenant as compared to a lease there are no long term financial commitments.
Licences are usually signed by new businesses who are unsure of how their business will succeed. They are also signed in the hope of securing a lease in the future once the business is established. The downside to signing a licence is that after the minimum period the landlord can ask you to quit at only 2 months notice. The rent is normally reviewed on the 3rd year. Unlike a lease, a licence agreement only requires in internal repair insurance from a tenant. The tenant is obliged to insure the front of the premises and their own contents. Structural repair obligations usually remain with the landlord on a licence. Rent is paid on a licence monthly.
For both leases and licences, before a tenant moves in they have to pay rent in advance and in most cases rent as deposit. Since the rent on a lease is paid quarterly, the rent in advance required is a quarters rent, and deposit (if required) is also a quarters rent. Since the rent on a licence is paid monthly, the rent in advance and deposit is also one months worth. Even if the tenant has successfully negotiated a rent review period, rent in advance is still required to move into the property. The rent free period commences from the following rent payment date.
The importance of references
when renting a commercial property the landlord is going to want to know who you are and be assured that you will be a good tenant who will pay the rent on time and look after the property. Some landlords are more picky than others when it comes to references but the rule of thumb is the more references the better.
The main concern of a landlord is the ability to pay the rent if the business fails. In some cases a landlord will request 6 months rent as deposit (instead of the usual 3 months) or request a guarantor in addition to the deposit.
If a tenant does not pay the rent, on a commercial lease the landlord is within their right to sent bailiffs into the property and change the locks (subject to the wording of the lease) the landlord does not need to go to the county council. I Will discuss the types of references required later.
Putting in an offer
once you have viewed a premises and have decided you are interested in it, you will need to put an offer on the property to the agent. We need these offers in writing. They can be either hand written or typed, and they can be posted faxed or e-mailed.
What we need in the written offer:
- • whose name the lease/licence will be in
- • accountants details (if applicable)
- • details of trade references (if applicable)
- • bank details for a bank reference (if applicable)/copies of bank statements.
Once an offer is accepted
once the terms of the commercial let have been agreed between the applicant and the landlord, a terms of agreement will be sent out to the two parties concerned and their solicitors. It is very important to get all the terms agreed before it goes to solicitors. The legal paperwork behind a commercial lease usually takes around two months. If not all terms have been agreed with the landlord beforehand, negotiations during the solicitors phase can drag the transaction on.
Solicitors don't often like talking to agents so it is useful for you to chase your solicitor on progress of the transaction.
The transaction for a commercial lease should take about 6-8 weeks, though for a whole variety of reasons can drag on for longer. In some cases the transaction can be very quick depending on the wording of the lease.
A licence is signed directly between the landlord and tenant and does not necessarily require the attention of a solicitor and therefore can be completed extremely quickly.
Whether a commercial property is being rented out on a lease or on a licence, it is always important to maintain a healthy relationship with the landlord. The key concern for a landlord is whether any interested party is going to make a good tenant. Will they look after the property and more importantly will they pay the rent on time. During the whole process of the transaction is very important to be in constant contact with the agent so that we can inform the landlord of the progress of the transaction and the willingness of the tenant in taking a property.