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Guide to Renting Commercial Property UK – How to Rent Advice and Tips for Tenants

Renting a commercial property in the UK is a complex process and there are multiple factors to take into consideration.

Tenancy types

When it comes to renting UK commercial property, there are two types of tenancy agreements: a licence and a lease. There are advantages and disadvantages associated with both and it is important that you carefully consider which agreement type better suits your business needs, depending on your business size, intentions and circumstances. We have highlighted some of the key differences between these two arrangement options.

Licence

A licence permits an occupier (licensee) to use the property for business purposes. As a licence is simply a permission to the property, you will not have exclusive possession, meaning there can be other licensees occupying the same property at the same time by entering into a separate licence. Furthermore, the landlord (licensor) will have the right to enter the building at any time. Licence agreements typically last less than six months and a renewal is not guaranteed.

Despite its disadvantages above, entering into a licence can be an ideal short-term solution for specific types of businesses, such as start-ups due to the flexible nature it can offer. Other benefits include:

  • High flexibility to relocate your business – licences typically give tenants the right to terminate the agreement with short notice.
  • Preparing and entering into a licence a quick and inexpensive process.
  • As a licensee, stamp duty land tax (SDLT) will not be payable.
  • Typically, business rates are not payable under a licence.

Some examples of commercial property types that are typically rented under a licence include pop-up shops and serviced offices where they involved shared facilities.

Lease

A lease is a more traditional and common way to rent a commercial property. The key characteristics of leases include:

  • Tenancy agreement for a set period of time, offering longer-term security. On average, commercial lease lengths were seven years in 2016 as the figure continues to increase.
  • When a lease of less than six months is granted, you will still have the right to renew once expired.
  • As a tenant, you will have exclusive possession of the property.
  • Costs, such as stamp duty land tax and business rates are typically payable.

Advantages of renting a commercial property

If you are in the process of deciding whether you should buy or rent a commercial property, it is worth taking the benefits of choosing to rent.

Lower up front costs

Rent deposit will be significantly lower than buying. Typically, between three to six months’ rent amount is required to pay upfront, although they can vary.

Potential for negotiations

Rent terms are often negotiable depending on multiple factors, such as the condition of the building and the landlord’s urgency to let out the property. You may, for example, try to negotiate a rent-free period and your lease length.

More choice

There is a greater choice of commercial properties up for rent compared to those available to buy, both on Commercial People and overall in the UK.

Greater flexibility

As a shorter-term solution, you will have greater flexibility when it comes to relocating your business to expand or downgrade your business.

Less responsibilities

As a tenant, often you are not responsible for maintenance and repair of the property.

Drawbacks of renting a commercial property

As well as the advantages listed above, commercial leases can come with several drawbacks, such as:

  • Short term stability, meaning limited period security
  • Rent payments are typically higher than mortgage repayments you get with property purchase.
  • You may not be able to alter the property to exactly how you want it if the landlord does not permit.
  • You are subject to rent reviews, which could result in a significant rental price hike.
  • Not able to sub-let the property, meaning no potential for an additional income through the property.

Considerations

If you are considering renting a commercial property, there are various important questions to ask yourself and also the agents/landlord in order to make the right choice, such as:

  • What type of commercial property do I need?
  • Where do I need to locate? (more detailed information below)
  • How much space do I require? (more detailed information below)
  • What facilities do I require?
  • What kind of impressions will the property give to customers and clients?
  • Will I get good broadband coverage?
  • Are there any major restrictions on the property that could affect my business?
  • What condition is the property in?
  • Can I afford to rent the property? (more detailed information below)
  • How often and by what method is the rent payable?
  • Who pays the repair and maintenance costs?
  • Can I alter the commercial property?
  • Do I have to pay a premium on the lease?
  • Does the property have the right use class?
  • What is the EPC rating of the property?
  • Are there alarm and CCTV systems installed?

It is worthwhile to prepare a comprehensive checklist of questions to ask prior to viewing any of the commercial properties you may be interested in renting.

Location choice

Without a doubt, location is one of the most important factors that could affect your choice of commercial property. The location will also have an impact on all aspects of your business including your staff, customers, clients and suppliers, therefore it is critical that you choose it carefully.

Will your existing employees be negatively affected by a move? It is important that you avoid your valuable staff being put off staying with your business due to more difficult commutes as a result of the location you choose. You may even want to consider offering flexible working arrangements to those affected, such as working from home.

Other considerations include parking spaces, congestion charges, nearby public transport links, nearby competitors and footfall and audience demographics if you are looking for retail units or restaurants, for example.

Size of the property

It is essential that you choose to rent a commercial property that is perfectly sized as it can affect a number of things. You will need to ensure the property you rent has sufficient space to allow the layout you want and accommodate the required number of desks and employees if you are Stamp Duty Land Tax (SDLT) for properties in England and Wales

  • Land and Building Transaction Tax (LBTT) for properties in Scotland
  • Moving costs
  • Premises alterations
  • Premium
  • Ongoing costs

    • Rent
    • Business Rates
    • Building insurance
    • Repair and maintenance
    • Service charges
    • Utilities
    • Staff salary

    What is a premium in a commercial lease?

    A premium refers to one of the potential upfront payments when taking up a commercial lease. A premium is a non-refundable cost that is paid on the ground of a lease by you as a tenant to the landlord.

    It is important to clarify the exact premium amount payable prior as this could have an impact on the SDLT amount payable on the commercial property you rent. Find more about SDLT exemptions here {link to SDLT page}.

    Making an offer

    Upon finding a commercial property that meets all your requirements, your surveyor can submit an offer to the landlord’s agent on your behalf. If your offer is provisionally accepted, the term negotiating process starts by drafting commercial lease heads of terms. Furthermore, it is possible to enter into a lock-out agreement to prevent the landlord from negotiating with other interested parties.

    Exchange of contracts

    When both you and the landlord are satisfied with the terms outlined in the terms and the contracts have been exchanged, the deal becomes a legally binding contract. The completion date of a lease does not occur immediately and should be set out in the heads of terms.

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