Before signing a lease, it is important that you calculate the true cost of your property to minimise any unexpected fees. In addition to the rent, you should make sure you consider the following:
It is not uncommon for landlords to require a rent deposit and this can be anything between 3-6 months’ rent. The deposit is payable at the start of the lease along with the first month or quarter’s rent. It is important to discuss with your new landlord what deposit is expected and when it is due.
The government charges all commercial tenants business rates on properties they occupy – think of it as Council Tax for commercial property. The typical amount charged is around 50% of the overall rent.
If your rateable value is less than £15,000 per year, you may be eligible for small business rates relief or may not be liable for paying rates at all.
Most landlords charge VAT on all goods and services, including rent and service charge payment. If you can’t reclaim VAT, then you need to allow for this, but, even if you can, then you may have a cash flow shortfall while you recover any VAT.
Service or Maintenance Charge
At properties that have common parts, such as security or landscaping which benefit all tenants, landlords may charge service or maintenance fees as a contribution towards the upkeep. These charges can vary on either a fixed or variable basis – the latter meaning the charge can differ from year to year. Read more our guide on charges.
The building you wish to occupy will almost always be insured by the landlord with the cost being recharged to you. You will, however, have to sort out your own insurance policies to cover things such as contents and public liability.
Repairs and Maintenance
It is important to check if you are going to be liable for internal and external repairs of your building while in occupancy. Chat with your new landlord to understand what exactly you will be liable for to avoid any unexpected bills or charges.
At the end of your lease you are usually required to return the unit ‘in good and substantial repair and condition’. This usually means no worse that when you moved in but, depending upon the condition when you took the premises, can mean putting it into a better condition than when you took the lease. The Royal Institution of Chartered Surveyors found that the average dilapidations settlement on industrial property was £7.27/sq ft, which is likely to be more than a year of rent for most occupiers. Some landlords offer a Schedule of Condition to help reduce this liability, while others (like Industrials) offer leases which exclude dilapidations at the end of the lease, so you can simply walk away. Read our guide on dilapidations for more information.
Waste and Utilities
It is important to establish what utilities you require in your new space. The likelihood is you will need to source your own electricity, water, gas and waste supplies, so it is worth getting some quotes done in advance to compare costs.
When fitting out your premises there are several things that attract tax relief through capital allowances, including heating, lighting, electrics, security, IT, carpets, furniture, racking, mezzanines, shelving, machinery, cranes and trade-related installations. The savings can be substantial, so it’s worth taking advice to see where you can save. Read our guide for more information.
Legal fees can rack up if you’re not prepared. Leases can be long legal documents and on top of this you may also need a building surveyor to check out the premises. Make sure you get some quotes in advance and include them in your budget. At Industrials we created the smart lease which is a short three page lease that requires no legal fees. Find out more about smart lease.