When you are setting up a new business you need to think carefully about where you will operate from. Choosing the right premises can often be one of the most important decisions that a business will make and it’s important to get it right.
Whenever you need to use premises for your business that you do not own you need to consider how you will occupy them and on what terms.
There are a number of different ways that you can occupy premises and the nature of the occupation will often depend on what you can negotiate with the owner. Most owners will require you to sign up to a formal arrangement before they will allow you to take occupation of the premises.
Before entering into any negotiations you need to consider what sort of arrangement is right for your business and this will often depend on a number of factors, including:-
- Do you need your own space or could you share it with another business(es)
- Do you want to commit to premises for a short or long time
- Do you need the ability to expand
- Will the public be coming to the premises
If you decide to share the premises with another business, or you only want the premises for a short period of time (less than six months) then you may wish to consider a licence or tenancy at will, details of which are not covered by this article.
If you require exclusive use of the premises then you will need to enter into a lease. A lease is a formal arrangement that is both a contract between you and your Landlord (the owner of the premises) and it gives you a leasehold interest in the property. It also gives you the exclusive right to occupy the premises for a fixed period of time. Having a fixed term lease can form a key part of your business plan.
A lease can be a fixed term lease or a periodic tenancy. A periodic tenancy often arises unintentionally and where you take occupation of premises without a written agreement in place. The advantage of a periodic tenancy is that it cannot be contracted out of the Landlord and Tenant Act 1954. The disadvantage of a periodic tenancy is that it can be risky as the terms have rarely been negotiated and as there are often no written terms the obligations on you and the Landlord can be unclear. You may, depending on how often you pay the rent also be required to leave the premises on short notice.
With a fixed term lease you can negotiate the terms. What sort of deal you can strike will often depend on the sort of premises that you are looking at and whether or not other premises are available to let nearby. Negotiating terms with a Landlord can often be complex so it is sensible to appoint an agent to negotiate terms on your behalf. Choose an agent who has experience in negotiating lease terms and is familiar with your geographical area.
Once the agent has negotiated the key terms of the lease (called ‘heads of terms’) then these will be passed over to a solicitor who will agree the lease itself.
|Periodic tenancy||Fixed terms lease|
|Pros||Can’t be contracted out of the Landlord and Tenant Act 1954||Able to negotiate terms|
|Cons||Risky as terms are rarely negotiated||Negotiating the terms can be costly|
There may be a cost associated with appointing an agent