Anyone currently letting commercial property?

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hasslehamhassleham Frets: 598
edited June 2018 in Off Topic
I’ll cut a long story short..
I’ve been looking for premises for a business for a while, found a place that fits my requirements and the price is reasonable. Started negotiations, landlord’s solicitor takes weeks to respond and says he wants £1750 + vat to write up the lease and negotiate, and his fee might increase. The landlord originally estimated £600 + vat for his legal fees.

I said I thought it was very unreasonable etc. and now the landlord has offered to let the property under a license for use instead of a full lease, which he can write up himself and we can sign once we have an agreement.

From what I gather, a licence for use tends to be more short term and less secure than a full lease, BUT it saves me paying £2k legal fees and it’s a startup business so I don’t really want to spend that much straight away. I would be happy with securing use of the property for one year, with the potential to sort out a full lease a year down the line.

Anyone have any knowledge/personal experience of this? I’m totally new to this sort of thing so any advice is appreciated!

Cheers
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Comments

  • guitarcookie1guitarcookie1 Frets: 461
    edited June 2018
    Not much help, but I’ve rented my office from the local council under license for the last ten years with no issues at all. 

    In my case, either party can give the other one months notice to end the agreement rather than being tied in for longer periods.
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  • Danny1969Danny1969 Frets: 10356
    edited June 2018

    When we took on the building lease to build 2020 studios we didn't use a solicitor ... you can download the forms and do it yourself. My business partner spend about 4 days googling legal terms but eventually he completed it and saved us £1800 in fees .... all we paid was £50 to the land registry as I remember.

    I don't know where you are but generally the would be tenant has the upper bargaining hand .... and any landlord has to pay the business rates himself once the property has been empty 6 months. With this in mind we bargained 6 months free rent when we took on our ten year lease 

    If you do take on a lease have a break clause inserted, we had one at 5 years and triggered it after catastrophic losses ...

    Pay attention to business rates ... at the moment a lot of smaller premises qualify for 100% small business rate relief but that might not always be the case .... business rates can be crippling, ours were £1000 a month on top of £2000 building rent

    guitarcookie1 is right about council small business premises ... I had several on easy in and out terms with no lease agreement 
    www.2020studios.co.uk 
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  • It’s been a while since I was involved with a commercial lease but a licence is going to be a lot less secure to you, as a tenant, than a lease. It could, however, be more flexible. A lease would give you security of tenure under the Landlord and Tenant Act 1954 meaning that the landlord can’t just terminate the lease at will. 

    Having said that, it is becoming common practice to now ‘contract out’ of the 1954 act anyway, so you would lose those benefits.

    £1,750 plus VAT is a ludicrous amount when it is likely that the solicitor will likely be using a precedent anyway. It’s normally cited as ‘reasonable’ legal fees rather than a blank cheque. I’ve dealt with commercial firms in London that didn’t want that much. Whichever way you go I would employ your own solicitor to look over the document (even if it’s a licence) - it might just be that a few hundred quid saves you thousands down the line.
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  • FretwiredFretwired Frets: 24601
    It’s been a while since I was involved with a commercial lease but a licence is going to be a lot less secure to you, as a tenant, than a lease. It could, however, be more flexible. A lease would give you security of tenure under the Landlord and Tenant Act 1954 meaning that the landlord can’t just terminate the lease at will. 

    Having said that, it is becoming common practice to now ‘contract out’ of the 1954 act anyway, so you would lose those benefits.

    £1,750 plus VAT is a ludicrous amount when it is likely that the solicitor will likely be using a precedent anyway. It’s normally cited as ‘reasonable’ legal fees rather than a blank cheque. I’ve dealt with commercial firms in London that didn’t want that much. Whichever way you go I would employ your own solicitor to look over the document (even if it’s a licence) - it might just be that a few hundred quid saves you thousands down the line.
    Not really. A decent solicitor can be charging £200 per hour plus VAT. And his fees will include some basic things like checking the guy renting out the premises is legally entitled to, check that the proposed use the building will be put to is allowed under planning regs along with any loading/unloading restrictions, and checking whether you are responsible for the interior of the building rather than the landlord, whether there's a service charge, whether SDLT applies, whether if you want leave you are responsible for finding a new tenant (a nice sneaky trick that someone tried on me once).

    Getting it wrong can be very costly ...

    Remember, it's easier to criticise than create!
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  • thecolourboxthecolourbox Frets: 9654
    As others have said a licence is generally less secure than a lease, but like you say that may count in its favour for your situation. Is the landlord an individual or an actual property company? I'd be wary and very careful of a licence drawn up by an individual. Particularly any terms inserted to screw you over at the end of the licence for dilapidations.

    Also is there service charge? Licences often include service charge in the rent but then this is never reconciled to actuals so doesn't exactly encourage the landlord to run the full services if he knows you are paying over the odds for them.

    But on the plus side, a one year licence gives you and the landlord a bit of a trial of each other so that might suit you both
    Please note my communication is not very good, so please be patient with me
    soundcloud.com/thecolourbox-1
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  • Lord_SpanielchipLord_Spanielchip Frets: 142
    edited June 2018
    So, on the National grade 1 with 8 years+ pqe the hourly rate is currently £217 per hour (plus VAT) - that’s a quoted 8 hours work as a minimum. This is the solicitor acting for the landlord that has come up with the figure of £1,750 plus VAT for drafting the lease (likely from a precedent with a few tweaks to suit the premises) so, yes, that is ludicrous.

    There would likely be a conflict of interest in that solicitor acting for the lessor and lessee and the drafting solicitor is quite likely to tell OP that he needs to take independent legal advice on the documents before signing. The OP’s solicitor, if he chooses to employ one, would be responsible for checking the points you referred to as well as checking any onerous covenants in the lease and advising OP accordingly, amending the lease to his clients needs and negotiating those points.

    On getting it wrong being very costly, I wholeheartedly agree. But if OP chooses to employ the services of a solicitor he has the benefit of PII to fall back on should a less than adequate job be carried out.
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  • hasslehamhassleham Frets: 598
    Fretwired said:

    £1,750 plus VAT is a ludicrous amount when it is likely that the solicitor will likely be using a precedent anyway. It’s normally cited as ‘reasonable’ legal fees rather than a blank cheque. I’ve dealt with commercial firms in London that didn’t want that much. Whichever way you go I would employ your own solicitor to look over the document (even if it’s a licence) - it might just be that a few hundred quid saves you thousands down the line.
    Not really. A decent solicitor can be charging £200 per hour plus VAT. And his fees will include some basic things like checking the guy renting out the premises is legally entitled to, check that the proposed use the building will be put to is allowed under planning regs along with any loading/unloading restrictions, and checking whether you are responsible for the interior of the building rather than the landlord, whether there's a service charge, whether SDLT applies, whether if you want leave you are responsible for finding a new tenant (a nice sneaky trick that someone tried on me once).

    Getting it wrong can be very costly ...
    £1750 plus VAT is what the landlord's solicitor want's to charge him (which WE have to pay for) just to produce the lease. That is before we have paid our own solicitor to look over the lease on our behalf. The fact that the landlord has worked with the same solicitors for years and they're probably going to edit an existing lease (from one of the previous tenants?) rather than start from scratch is pretty ridiculous IMO.



    We have already discussed and agreed Head of Terms with the landlord, so we would simply be agreeing the terms through a License For Use instead of a full lease. The agreed rent and any extra charges have already been agreed so I presume there is no service charge (but I haven't seen the license yet).
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  • FretwiredFretwired Frets: 24601
    hassleham said:
    Fretwired said:

    £1,750 plus VAT is a ludicrous amount when it is likely that the solicitor will likely be using a precedent anyway. It’s normally cited as ‘reasonable’ legal fees rather than a blank cheque. I’ve dealt with commercial firms in London that didn’t want that much. Whichever way you go I would employ your own solicitor to look over the document (even if it’s a licence) - it might just be that a few hundred quid saves you thousands down the line.
    Not really. A decent solicitor can be charging £200 per hour plus VAT. And his fees will include some basic things like checking the guy renting out the premises is legally entitled to, check that the proposed use the building will be put to is allowed under planning regs along with any loading/unloading restrictions, and checking whether you are responsible for the interior of the building rather than the landlord, whether there's a service charge, whether SDLT applies, whether if you want leave you are responsible for finding a new tenant (a nice sneaky trick that someone tried on me once).

    Getting it wrong can be very costly ...
    £1750 plus VAT is what the landlord's solicitor want's to charge him (which WE have to pay for) just to produce the lease. That is before we have paid our own solicitor to look over the lease on our behalf. The fact that the landlord has worked with the same solicitors for years and they're probably going to edit an existing lease (from one of the previous tenants?) rather than start from scratch is pretty ridiculous IMO.



    We have already discussed and agreed Head of Terms with the landlord, so we would simply be agreeing the terms through a License For Use instead of a full lease. The agreed rent and any extra charges have already been agreed so I presume there is no service charge (but I haven't seen the license yet).
    You don't have to pay the landlord's legal bill for the lease. But I wouldn't enter into an agreement without a lease.

    Remember, it's easier to criticise than create!
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  • FretwiredFretwired Frets: 24601
    So, on the National grade 1 with 8 years+ pqe the hourly rate is currently £217 per hour (plus VAT) - that’s a quoted 8 hours work as a minimum. This is the solicitor acting for the landlord that has come up with the figure of £1,750 plus VAT for drafting the lease (likely from a precedent with a few tweaks to suit the premises) so, yes, that is ludicrous.

    There would likely be a conflict of interest in that solicitor acting for the lessor and lessee and the drafting solicitor is quite likely to tell OP that he needs to take independent legal advice on the documents before signing. The OP’s solicitor, if he chooses to employ one, would be responsible for checking the points you referred to as well as checking any onerous covenants in the lease and advising OP accordingly, amending the lease to his clients needs and negotiating those points.

    On getting it wrong being very costly, I wholeheartedly agree. But if OP chooses to employ the services of a solicitor he has the benefit of PII to fall back on should a less than adequate job be carried out.
    Not likely; there is a conflict of interest. There may not be an up to date lease to modify so the landlords solicitor may have to do some work so the charge maybe genuine. It's not simply a case of using a boilerplate document. If he/she makes a mistake they could be liable.

    I have rented and let buildings (never owned one is was part of a building owned by the company I worked for). I have never paid for a landlords solicitor to create a lease, nor have I charged a prospective tenant. Why would you want to commit to paying for something you may not sign?

    It's up to the landlord to come up with a lease document.

    Remember, it's easier to criticise than create!
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  • The lease would likely contain a clause to the effect that the lessee be responsible for the lessor’s reasonable legal fees in the preparation of the lease, hence the fee being quoted by that solicitor. Ultimately, the landlord would remain responsible to his own solicitor for the fees incurred and the OP would be responsible for reimbursing the landlord - I can’t work out why such a high figure is being requested on account prior to starting work.

    I must have been selling myself short for a few years on commercial leases! That would be the sort of quote I would give if I didn’t really fancy the job...
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  • Lord_SpanielchipLord_Spanielchip Frets: 142
    edited June 2018
    The chances of there not being an easily modifiable commercial lease in their precedent bank is highly unlikely, IMHO. Given that OP states the landlord has worked with the solicitor before, it’s highly likely that he knows his client’s requirements. 

    Where the lease contains a clause requiring reimbursement of the landlord’s legal fees, the initial letter from the landlord’s solicitor usually contains a paragraph seeking confirmation that the lessor will be responsible for the landlord’s legal fees whether the matter proceeds to completion or not. Most parties are flushed with the idea of taking on the Property and will agree to such a condition. I would always seek to have those fees capped.
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  • DominicDominic Frets: 16008
    Whether licence or lease outside of the Act isn't especially relevant ( the licence will need to be court endorsed to put it outside of the Act ) but the clear identification of the demise and Repairing and Insuring liabilities covenanted in an FRI lease are of critical importance as is the review pattern.
    Make sure that the Landlord does not try and contract/licence you into repairing and dilapidation liability as is normal with a formal FRI lease.
    You would need to stand personal surety for a formal lease even if assigned and stand behind a private LTD as guarantor.
    The premises are probably Tertiary and the covenant value is of little effect on the Freehold Reversion value therefore the Landlord probably won't be bothered whether you are a tenant or licensee outside of the Act.
    The licence option will limit your liability, probably free you of repairing covenant and be more flexible and of short term -unless the location is critical/ has premium value then a lease is a liability not an Asset on your balance sheet.
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  • 1.Get an agent who knows the local property market. He can agree heads of terms. Rent/Lease or Licence/repairs/insurance/break clauses (conditional or unconditional?)/service charges/rent review bases/incentives e.g.; rent free,landlords works/dilapidations liability. Agree a fixed fee

    2.Get your own solicitor who specialises in property,to negotiate the lease/licence. Agree a fixed fee. (We don't know the scale of this property so 1750 might be reasonable depending on the level of rent.)

    As some who works in this industry,trust me when I say to take proper professional advice at every level. I've seen tenants get royally screwed as they got tripped up in the lease terms,and I mean 100grand screwed! Don't "wing it" for the sake of the price of a guitar. Any balls ups, will cost a lot more,and fees will seem cheap then. 

    Also,you should NOT be paying the landlords legal fees under any circumstances.

    The terms of your agreement will be largely determined by the market,and how badly you want to take it,how badly the landlord wants/needs to let it.
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  • FretwiredFretwired Frets: 24601
    The lease would likely contain a clause to the effect that the lessee be responsible for the lessor’s reasonable legal fees in the preparation of the lease, hence the fee being quoted by that solicitor.
    It's a cost of doing business. The landlord should pay it.

    Remember, it's easier to criticise than create!
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  • StavrosStavros Frets: 328
    Would serviced offices be an option?
    I love my brick
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  • ChalkyChalky Frets: 6807
    Old Landlord tries it on with novice would-be tenant. Shocker!
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