Congratulations – your business venture has reached the point where you are considering renting some commercial space. Whether you are looking to lease a shop, café, warehouse, office space or factory – there are various things to consider before signing on the dotted line.

One of the most important factors to consider is costs and affordability.

It is important to have a clear understanding of all the costs involved in letting a commercial unit, not just the annual rent involved. Just like with renting or purchasing a house is it critical that you have the finances in place and the means to make the monthly, quarterly or annual payments.

Our Commercial Property Law specialist, Bryony Dew, gives a brief overview of the costs involved that tenants need to budget for;

• The annual rent. This is often calculated on the square footage of the space you are renting. Often it is payable quarterly or monthly in advance. Be aware that annual rents are likely to increase over time. Typically landlords will review the rent every 3 – 5 years.

• Deposits. As with residential leases your landlord may require a deposit to be used if you were to fall behind or rents or to repair the property at the end of the lease.

• Landlord’s buildings insurance premium. This is often payable annually in advance on the landlord renewing the buildings insurance – you will be expected to pay the whole of the premium for the property you are renting.

• Service Charges. If the property is on an estate or part of a larger building – for example renting a floor in a shared office then a service charge is payable. Usually an estimated amount is charged quarterly in advance.

• Business Rates. These are charged on any non-domestic properties (similar to council tax). Some businesses will qualify for reliefs and it is worth checking what you will be liable to pay. Local authorities send out business rates bills annually each February or March.

• Utilities. You will usually need to factor in the cost of electricity, gas, water and foul waste removal either direct to the provider, or as part of a service charge.

• Other services. When working out your budgets and affordability it is worth factoring in other services you will need such as internet connection, phone lines, radio or music licenses.

• Professional Advice. You will need to seek advice from solicitors to review and negotiation the lease and any ancillary documents (such as a licence (consent) for alterations) and also the services of a commercial agent. Remember that the cost of not seeking professional advice is often higher than getting the right advice from the outset.

• Stamp Duty Land Tax. May be payable, based on any premium and the rent of commercial properties over a certain value.

• Moving costs. Will you require the services of movers or need to hire vans or lorries to complete your move? It is also worth considering ‘lost hours’ in your business whilst you settle into your premises as this could impact on your profits.

• Furnishing and decorating. Unless you manage to find a business unit perfect for your requirements you are likely to need to put aside some funds to fit out the property. This could include lighting, painting and decorating, carpeting and also furnishing the business space. You are likely to need the landlord’s consent to certain works and this is best sought as part of the letting.

• VAT. Don’t forget that VAT may be chargeable on most of the above costs.

If you are taking over an existing lease from a previous tenant that has already paid some of these costs in advance under the terms of that lease, then you are likely be expected to re-pay the transferring tenant the proportions attributable to the period after completion.

Our aim is not to put you off from taking out a commercial lease, but we want to ensure that all our potential clients are aware of all the costs involved and that they are in the right financial position to take on the commitment of a commercial lease.

We understand the importance of clarity and so we provide you with a transparent fee estimation from the outset.

For more information on renting commercial property for the first time or to enquire about a quote for solicitor’s services involved in taking out a business lease then please get in touch with Bryony Dew, Solicitor and Associate within the Property Law Team at Lamb Brooks LLP.

Call Bryony on 01256 305553 or email bryony.dew@lambbrooks.com today.

The contents of this article are for the purposes of general awareness only. They do not purport to constitute legal or professional advice.  The law may have changed since this article was published.   Readers should not act on the basis of the information included and should take appropriate professional advice upon their own particular circumstances.