Commercial property is classified into categories called Planning Use Classes, which restrict the type of business activity that can run from them.
The following are just some of the key planning use classes:
- A1 – Retail premises i.e. shops, hairdressers, travel agencies, funeral homes, sandwich bars and more
A2 – Professional and financial services i.e. banks, solicitors and estate agents
- A3 – Establishments where customers buy and consume food and drinks on the premises i.e. cafes and restaurants.
- A4 – Drinking establishments i.e. pubs and bars (but not night clubs)
- A5 – Hot food takeaways
- B1 – Business use i.e. offices or research and development facilities
- C1 – Hotels, hostels, boarding houses and guest houses
- C2 – Care homes, schools, colleges and training centres
It is important to check a premises classification before committing to a property, however, if the ideal property has a different planning use class to your intended business activity, then you can seek to change the classification with your local authority planning office. Further information on this process can be found at: https://www.gov.uk/planning-permission-england-wales
Renting Business Premises
Whether you are looking for co-working, office, manufacturing, warehousing or retail space; renting is the most popular and flexible option for growing businesses.
Typical property rental contracts include:
A gross lease is where the landlord pays for the property tax, insurance and maintenance costs. The landlord will then take into consideration property costs and calculate them to create an inclusive rent offer.
Net leases are unlike gross leases, tenants are required to pay a portion or the entirety of maintenance costs (i.e. taxes, utility bills).
Net leases are divided into three categories –
Single net leases are where the payment of the tax is the responsibility of the tenant, but the landlord is still in charge of the rest of the expenses.
- Double net leases make the tenant responsible for tax and insurance costs, while maintenance costs are still managed by the landlord.
- Triple net leases are an agreement where the tenant is held responsible for all the costs of the property, including maintenance.
Easy in and out options
Tenancy-at-will is an agreement that can be terminated at any time by either the tenant or the owner or landlord. It exists without a contract or lease and usually does not specify the length of a tenant's duration or the exchange of payment.
- A licence to occupy is a legal agreement between the licensor (who owns the property) and the licensee (seeking to occupy the property), giving the licensee the right to occupy the property for a defined length of time.
Businesses need to have a thorough understanding of all the conditions of payment that apply to your agreement:
- With what frequency you’ll need to pay your rent. Rent on commercial properties can be paid quarterly and in advance or monthly.
- When you can pay your rent. Do any deadlines apply to when you can pay each quarter/month? For example, will you incur penalties if you don’t pay within 10 days?
- How to pay your rent and any additional charges (such as service charge). It sounds obvious, but be sure to set up payment methods (such as standing orders or direct debits) with your landlord straight away to avoid any unforeseen problems.
Some growing or less established businesses can be asked to provide a rent guarantee to prove they can consistently meet the cost before a landlord will agree to rent to them.
In many cases a bank guarantee and financial accounts will suffice, but landlords may ask for a cash deposit.
Service charges cover the fees that landlords pay out to maintain the property, and then charge back to you.
They’ll often include:
- Cleaning, maintenance and repairs to the parts of the property that are shared by multiple tenants, such as hallways, reception areas, stairwells, lifts, the building’s facade, plumbing, roofing and drains.
- Management charges that the landlord pays to their agents with regards to the management of the property
Service charges are typically worked out on one of two methods:
- A fixed charge: This will be a pre-set percentage of all the costs the landlord expects to pay for the whole building.
- A proportional charge: Perhaps the fairer option, a proportional service charge considers your section of the building as a certain proportion.
Repairs and maintenance
Your lease should say who is responsible for repairs and maintenance of the property.
When you move out, you may have to pay for certain repairs, or return the property to the state it was in when you first rented it. The repairs you’ll need to make are called ‘dilapidations’ and should be written in the lease. Any responsibility that isn’t mentioned in the lease will usually be yours as the tenant.
Should for any reason you need to end your commercial property lease early, then it is crucial that you seek advice and terminate any agreements in the proper manner. Further advice can be found at https://www.gov.uk/terminating-a-commercial-property-lease-early