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
Comments
In my case, either party can give the other one months notice to end the agreement rather than being tied in for longer periods.
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
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.
Remember, it's easier to criticise than create!
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
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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.
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).
Remember, it's easier to criticise than create!
Remember, it's easier to criticise than create!
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...
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.
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.
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.
Remember, it's easier to criticise than create!