Commercial property is a highly complex area of law. Whether you are purchasing a property for business use or taking a lease of premises, the costs of acquisition often represent one of the largest expenditures your businesses will incur in the year and there will often be significant ongoing costs associated with the property.
As such, it is important to ensure that you understand what you are agreeing to, what your obligations are and ultimately that you are making the right decisions – especially if you want to avoid risking substantial sums of hard-earned cash.
Here are 3 commercial property myths – and the truth behind them!
“I plan to rent the premises through a limited company so if the company goes bust I can walk away from the property and the lease.”
If your company goes out of business, whilst it may no longer be able to make the rent payments, this doesn’t mean your responsibility will necessarily be absolved. Before you are given the keys to a property, it is likely the landlord will try to obtain personal guarantees from you / other directors of the company. Make sure you take careful note of any personal guarantees you provide and where possible, request to include a term enabling the guarantee to be released on assignment.
In some circumstances the court can ‘pierce the corporate veil’ thereby holding directors and shareholders personally liable for the debts of their company.
“I am renting a commercial property and therefore don’t need a survey.”
Whilst the landlord of a residential property will normally have some repairing obligations, under the majority of commercial leases you will be solely responsible for the repair and upkeep of the property and for any liabilities associated with matters such as asbestos and contamination. Even if you are only taking a lease of part, with the landlord being responsible for the repair of structural parts of the building and common parts you will normally bear some or all of the cost via a service charge. Having a survey at the outset can identify any issues so you can gain an idea of what you are committing to spend should you go ahead.
When the time comes that you need to vacate the property, there will be clauses in the lease that require you to leave it in ‘good condition’. Even if the building was not in a good state of repair at the time of possession, without a detailed schedule of condition that documents the condition that the property was in when you took possession, referred to in the lease and annexed to it, you will find that you are liable for the cost of putting the property into a good state of repair when you vacate.
It is always worthwhile clarifying your obligations with regards upkeep of the property. Depending on the wording of the agreement you enter into, you might find that your responsibility extends far further than you might have anticipated – for example making you as the tenant liable for undertaking works to the premises so as to comply with any new government legislation.
“There is no need to carry out searches against a commercial property.”
Whilst you might assume that it is the landlord’s responsibility to ensure the suitability of the premises for your business’ use, the burden actually lies with the tenant. Searches against a commercial property should be undertaken to investigate any proposed plans for the street or local area that might potentially affect access to the property.
In addition, searches will reveal the planning history relating to the premises. Again, although you might assume that any planning permission issues lie with the landlord, this isn’t normally the case and it is worthwhile spending the time and money required to investigate at the outset before you find yourself committed to a property for the term of the proposed lease.
Once a lease for a commercial property is signed you will be bound by the contents of it. As most leases contain over 50 pages of detailed provisions, it is strongly advisable to consult an experienced commercial property solicitor to interpret and negotiate the terms before you sign.