Looking for a commercial property for rent? Whether it is your first time renting a commercial property, or you already have some experience under your belt, it is still a major commitment.
Today we have pulled together a useful guide to renting a commercial property in the UK, to help you navigate the process with confidence.
Find the right commercial property for rent
Location, location, location
The location of your commercial property is one of the most important factors when deciding on a new premises. You should thoroughly research the local property, tenant demand and rental values.
If you are looking for a restaurant, café or retail unit, you will want to ensure it has high footfall. If you are seeking an industrial unit, you will require good transport links. And if you are searching for an office space or serviced offices to rent, you will need a location that staff can easily commute to.
You may also want to look out for incentives or initiatives in the region, such as Business Improvement Districts (BIDs), Enterprise Zones and Local Enterprise Partnerships (LEPs).
You can search for commercial properties for rent in the Derbyshire area by clicking here.
What type of commercial property is best?
There are lots of questions to ask when considering a commercial property to rent. For example, how much, and what type of space will you need? Will this change soon? After all, your business will be more profitable and easier to run if you pick the right commercial property for rent.
You should consider the number of employees on site, the processes used, and any machinery required. If you anticipate that the business will grow, will you need further space to expand into or will you relocate to other premises further down the line?
You may find that an open-plan layout or hot desking will save your business space.
It is advisable to double check that any commercial property you are considering to rent has the planning permission for the business you will do while in occupation.
If you are looking for a specific commercial property, you can sign up to our property alert system to be matched up with the right property for you.
If you wish to make some alterations to the commercial property, you may need to get consent from your landlord first.
Other considerations
There are other factors you will need to take into account when inspecting a commercial property for rent, for example:
- Transport links – Airports, trains, buses, and roads
- Congestion charges
- Parking facilities and restrictions
- Delivery facilities and restrictions
- Proximity to customers, clients, and staff
- Impression it gives staff and clients
- Local amenities – Cafes and shops for employees
- Staff facilities
- Equipment and furniture
- Broadband and coverage
You must also check the overall condition of the commercial property for rent, in the same way that you would if you were renting a house. Look out for damp, cracks and plumbing issues, or any other defects.
Renting commercial property costs
How much rent can you afford?
The level of rent is one of the most important questions you must ask when looking at a commercial property for rent. After all, it tends to be one of the main renting commercial property costs you will encounter.
Normally rent is paid quarterly in advance on 25 March, 24 June, 29 September, and 25 December. However, landlords are increasingly accepting rent payments monthly. Any service charge or insurance will usually be billed along with the rent. You may be asked to provide a guarantee for the rent and other obligations if your business is young or small.
A lease – particularly if it is a long one – may include rent reviews. These typically occur every three, four or five years, which can alter the amount you pay over time. It is important to note that rent can go up or down as well, depending on the terms of the lease.
Therefore, it is advised that you research rental trends and forecasts before you sign the dotted line. You can also seek advice from a commercial estate agent like ourselves.
However, there are other renting commercial property costs.
How much will business rates cost?
You will need to factor in business rates, a tax on non-residential buildings in England and Wales. They are handled differently in Scotland and Northern Ireland. The rates cover shops, offices, pubs, warehouses, and factories and are typically paid by the tenants.
There are two main factors that are used to calculate business rates. They are the rateable value – broadly the open market rental value of the commercial property and the level of the uniform business rate (UBR). A revaluation to adjust the business rates to reflect changes in the property market usually occur every five years. The most recent revaluation came into effect in England and Wales on the 1 April 2017, based on the rateable values from 1 April 2015.
There are opportunities to apply for exemptions, such as small business relief.
The local council will send the business rates bill in February or March each year for the following tax year.
Other Considerations
Typically, you are expected to cover all or part of the service charges on the commercial property for rent. Service charges tend to include maintenance of the common parts of the commercial property and a share of any repair or redecoration work. If your landlord is responsible for insurance, you may be required to share the cost too.
Energy is one of the other costs of renting a commercial property that is likely to come into play. Retail units are the largest consumer of energy in commercial property. However, they tend to be more efficient, according to a government source. Your landlord is required to provide you with an Energy Performance Certificate (EPC) showing you how energy efficient the commercial property is.
Other facts to work into your budget may include:
- Professional advice from commercial estate agents and solicitors
- Local authority charges
- Deposit to secure the commercial property
- VAT, which is payable on some buildings
- Stamp Duty Land Tax on commercial property valued above a certain threshold. It is based on the premium and rent
- Decoration, repairs, and ongoing maintenance
You may seek capital allowances, a form of tax relief. If you buy an asset to use in your business, you may be able to claim a capital allowance to cover the cost.
Negotiate a commercial tenancy agreement
You will typically secure a commercial property for rent by signing a lease agreement or license.
A lease is a legally-binding contract which sets out the terms and conditions of the tenancy agreement between the landlord and tenant. It offers long-term stability compared with a license (see below).
The average length of a new lease is now 4.5 years compared to 6.8 years in 2003, according to the Property Data Report back in 2014. However, it can be 25 years.
Leases have become more flexible in recent years. Rent-free periods have become more prevalent, as have break clauses, providing you and your landlord with an option to serve notice during the tenancy without facing a penalty. You should give your landlord two months’ notice if you plan to exercise your break clause. Your landlord can only use it if you agree.
The Royal Institution of Chartered Surveyors (RICS) advises taking note of what the proposed contract contains on service charges, rent reviews, subletting space, assigning the lease, repairing, and decorating obligations and personal guarantees. At BB&J Commercial, these are key factors which we mention to our clients to ensure they understand the contract they are signing.
Licenses are available if you are seeking a commercial property to occupy for a short period of time. They can be a good option if you are a start-up business. The license fee – equivalent of rent – might be due monthly in advance or even weekly. Licenses tend to last up to six months and have fewer tedious conditions than leases. You will have no right to renew the license upon expiry.
Licenses are available on a variety of commercial property types, including pop-up shops, warehouses divided and refurbished into office space, and industrial buildings.
Service contracts tend to be granted on serviced office space. They range from short to long-term arrangements and may include the provision of desks and secretarial services as well as office space itself.
Agree an offer
It is commonplace to submit an offer on a commercial property for rent to the landlord’s agent. The terms of the lease can be subject to extensive negotiation.
Once you have submitted an offer and have had it accepted, you may want to ask the landlord to refrain from marketing the commercial property for rent any further. It will help prevent other interested parties from negotiating with the landlord.
A document containing the key points of the agreement will be drafted up in a document, known as the heads of terms. It is important to note that this is not legally-binding. However, it is considered a draft of the main contract and generally includes:
- The type of agreement
- Description of the deal
- Rental value, currency, and payment arrangements
- Proposed timescale, including the date of completion
The legal work begins when both the tenant and the landlord agree the heads of terms.
It is advisable to carry out a building survey so you are fully aware of the condition of the commercial property for rent, and any likely repair or maintenance costs that may be occur. A survey normally details all aspects of the property, including the walls and floors. It will also flag up anything that has not been inspected and causes for concern.
You should set up a Schedule of Condition report to detail the exact condition using photographs and attach it to the commercial tenancy agreement.
A local search is also a good idea to establish if there are any plans that may impact the commercial property for rent and the wider area. The search shows entries kept by the local council, and usually cover:
- Planning and building regulations
- Roads
- General matters
You may undertake other searches to gain a more comprehensive overview, such as flood risk assessments.
Exchange contracts and complete the deal
You will exchange contracts once the money to do the deal is in place and your commercial agent and your solicitor are satisfied with the state of the commercial property, as well as the contract. The deal will be legally-binding when the contracts are exchanged.
Do you have any additional advice on securing a commercial property for rent? Tell us by posting a comment on our social medias!
If you are a landlord looking to let out a commercial property, please contact us on 01332 292825 or commercial@bbandj.co.uk.
