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Renting of commercial space

Commercial Property Guides

Renting or Leasing Commercial Property

Renting commercial property usually represents a major part of the operating costs involved in running any business. If you include surveyor’s and solicitor’s fees, rent, business rates, insurance, service charges and/or repairs and maintenance these items can easily make up 20% to 30% of your first year’s operating expenses.

It’s very important therefore that you get the right premises for your present and future needs and that you don’t commit yourself to something you cannot afford if things go wrong, or if your new business does not take off as planned. Remember, something like 2/3rds of all new businesses fail within the first 3 years!

Not many new businesses have the wherewithal to buy a freehold property, so taking on a lease is often the only option you have. If you are new to renting business premises you need to be aware that there are a lot of legal implications which may not be immediately obvious.

The Commercial Lease and Negotiations

You should be aware of some important differences between renting residential accommodation and taking on a commercial lease if you are to avoid some serious potential pitfalls:

• Commercial (business) leases tend to be much less standardised than residential ones, and therefore you need to read them very carefully.

• You need to bear in mind that with a commercial lease almost every aspect is open to negotiation. You can do this yourself providing you know what you are dealing with, otherwise get expert help.

• Market forces determine the nature and terms of a business lease much more than with a residential tenancy. If the current market favours the landlord, there being a high demand for his property, then he can negotiate more favourable terms for he, and vice versa.

Business leases are often of the “Full Repairing and Insuring” (FRI) variety, which means that you as tenant take on all repairing and maintenance obligations and building insurance costs.

The Lease term.

Generally speaking the longer the term you are willing to commit yourself to, and the more onerous your lease terms, within reason, the lower should be the rent you pay, and of course, vice versa.

You need to negotiate the best deal you can on rent. It’s usual for a lease to contain provisions for rent reviews a certain periods, for example every 3 years. Depending upon the market and the area you are in, your rent can increase considerably over time.

A New Business Tenant’s Checklist

Find out the market rent in the area. This can be done by asking Pattaya Realty Commercial and checking comparables – rents and prices of local property currently let or recently let or sold.

What is the norm in the area for lease terms given the state of the local market and the condition of the premises? Again look for comparables.

Have you considered the lease term (length). Is it appropriate or are you taking too big a risk if things go wrong?

Is the lease quite short, or is there an unconditional break clause in the lease, allowing you to surrender it early?

• Does the landlord require a guarantor – someone to stand surety and guarantee rent payment on your behalf?

• Does the landlord require an ingoing premium payment or a rental deposit?

• Can you provide good references if the landlord requires these from your bank, your accountant or trading suppliers or customers? Will you pass a credit check?

• Landlords sometime ask for a contribution to or even the full cost of the lease from the in-going tenant. In the case of secondary properties this is negotiable. A fair compromise on this is that both parties pay their own lea gal costs and the cost of the lease is shared 50/50.