Choosing between protected and unprotected tenancies
Choosing your business premises
In some circumstances it may be more cost effective for you to run your business from your home rather than from business premises. Whether it is appropriate for you to do so will depend on the nature of your business; for example, if your business is mainly computer and telephone based it is likely to be more appropriate for you to work at home than if your business requires workshop space, or lots of facilities.
You must bear in mind that if you choose to run your business from home, you may need to obtain certain permissions (eg from your landlord, A loan (usually to an individual or individuals) to purchase a property, which is secured on the property. provider, The branch of a local council which deals with planning permission. and/or home insurance provider).
If your tenancy agreement is a A business run from the owner's main home. tenancy you may be able to run your business from home without landlord approval. A A business run from the owner's main home. tenancy allows you to run a business which might reasonably be carried on from home, as long as your home continues to be occupied as a dwelling house and your business does not involve selling alcohol to be drunk at the premises.
For full guidance about what to consider when running your business from home, see Setting up a home business. You can also find an overview of the key pros and cons of tenancies, licences and premises ownership at Choosing your business premises.
If you need long-term Also known as a debenture, charge or mortgage, security over an asset or assets (such as cash, debts, real estate or equipment) is given by a borrower (and sometimes a third party such as a shareholder of the borrower) to a lender in case the borrower fails to make a payment due. Security is also used to refer to a personal guarantee of a borrower's payment obligations to a lender, typically given again by a shareholder and sometimes secured over the shareholder's personal assets. In the event of a borrower's failure to make a payment due to a lender, the lender will have the right to sell any asset secured or call in the guarantee. from your business premises, consider a A tenancy which runs for a set period of time before ending (as opposed to a periodic tenancy, which will renew at its end date rather than end unless steps are taken to terminate it). or buying premises. As a general rule, the more Also known as a debenture, charge or mortgage, security over an asset or assets (such as cash, debts, real estate or equipment) is given by a borrower (and sometimes a third party such as a shareholder of the borrower) to a lender in case the borrower fails to make a payment due. Security is also used to refer to a personal guarantee of a borrower's payment obligations to a lender, typically given again by a shareholder and sometimes secured over the shareholder's personal assets. In the event of a borrower's failure to make a payment due to a lender, the lender will have the right to sell any asset secured or call in the guarantee. you want, the more it will cost you. If renting, note that there are different types of tenancies which offer more or less Also known as a debenture, charge or mortgage, security over an asset or assets (such as cash, debts, real estate or equipment) is given by a borrower (and sometimes a third party such as a shareholder of the borrower) to a lender in case the borrower fails to make a payment due. Security is also used to refer to a personal guarantee of a borrower's payment obligations to a lender, typically given again by a shareholder and sometimes secured over the shareholder's personal assets. In the event of a borrower's failure to make a payment due to a lender, the lender will have the right to sell any asset secured or call in the guarantee. , so it is important to look into the detail of any agreement with a prospective landlord to ensure that it will meet the needs of your business.
You can find an overview of the key pros and cons of tenancies, licences and premises ownership at Choosing your business premises.
If you want flexibility from your business premises (eg if you want to be able move premises quickly or because your business is a start-up with rapidly changing requirements), a licence or a short-term or A tenancy which is not for a fixed term, but which renews automatically eg from month to month or quarter to quarter. are likely to be your best options. Licences are the most flexible option (eg for the use of an area within a co-working space or a suite in a block of serviced offices). Tenancies give you more Also known as a debenture, charge or mortgage, security over an asset or assets (such as cash, debts, real estate or equipment) is given by a borrower (and sometimes a third party such as a shareholder of the borrower) to a lender in case the borrower fails to make a payment due. Security is also used to refer to a personal guarantee of a borrower's payment obligations to a lender, typically given again by a shareholder and sometimes secured over the shareholder's personal assets. In the event of a borrower's failure to make a payment due to a lender, the lender will have the right to sell any asset secured or call in the guarantee. as they are generally harder to terminate (both for you and your landlord), and will give you full control over whatever premises you rent.
Alternatively, consider whether a longer A tenancy which runs for a set period of time before ending (as opposed to a periodic tenancy, which will renew at its end date rather than end unless steps are taken to terminate it). might suit you if it contains a A term in a tenancy agreement which gives either tenant or landlord (or both) the right to end the tenancy early. to give you to option to end it early if you need to. For example, you might be able to negotiate the inclusion of a A term in a tenancy agreement which gives either tenant or landlord (or both) the right to end the tenancy early. allowing you to get out after two years of a 10 year tenancy. Be very careful if relying on a A term in a tenancy agreement which gives either tenant or landlord (or both) the right to end the tenancy early., as they can be tricky to invoke correctly. You can end up stuck paying for premises that you no longer want (see Tenant ending a tenancy for guidance on how to use a A term in a tenancy agreement which gives either tenant or landlord (or both) the right to end the tenancy early.).
You can find an overview of the key pros and cons of tenancies, licences and premises ownership at Choosing your business premises.
The type of premises that are suitable for your office-based business will depend on how much flexibility you require, and your budget. For a general overview of the key pros and cons of tenancies, licences and premises ownership, see Choosing your business premises. You could consider the following options for your office-based business:
shared office space – flexibility for small businesses, start-ups and restricted budgets (see Q&A 29 and following);
renting the whole or part of an office building - some Also known as a debenture, charge or mortgage, security over an asset or assets (such as cash, debts, real estate or equipment) is given by a borrower (and sometimes a third party such as a shareholder of the borrower) to a lender in case the borrower fails to make a payment due. Security is also used to refer to a personal guarantee of a borrower's payment obligations to a lender, typically given again by a shareholder and sometimes secured over the shareholder's personal assets. In the event of a borrower's failure to make a payment due to a lender, the lender will have the right to sell any asset secured or call in the guarantee. , but more expensive (see Q&A 19 and following); or
buying office space – usually the most expensive, but a very secure long-term solution (see Q&A 6 and following).
The type of premises that are suitable if your business will be customer-facing will depend on how long you want to be in your premises, how flexible you need them to be and how much control you want over them. For a general overview of the key pros and cons of taking on different types of premises, see Choosing your business premises. You could consider one of the following options for your retail business (or other business open to the public):
licence agreement for temporary pop-up shop – little Also known as a debenture, charge or mortgage, security over an asset or assets (such as cash, debts, real estate or equipment) is given by a borrower (and sometimes a third party such as a shareholder of the borrower) to a lender in case the borrower fails to make a payment due. Security is also used to refer to a personal guarantee of a borrower's payment obligations to a lender, typically given again by a shareholder and sometimes secured over the shareholder's personal assets. In the event of a borrower's failure to make a payment due to a lender, the lender will have the right to sell any asset secured or call in the guarantee. , but good for restricted budgets and generating buzz (see Q&A 29 and following);
renting retail premises – some Also known as a debenture, charge or mortgage, security over an asset or assets (such as cash, debts, real estate or equipment) is given by a borrower (and sometimes a third party such as a shareholder of the borrower) to a lender in case the borrower fails to make a payment due. Security is also used to refer to a personal guarantee of a borrower's payment obligations to a lender, typically given again by a shareholder and sometimes secured over the shareholder's personal assets. In the event of a borrower's failure to make a payment due to a lender, the lender will have the right to sell any asset secured or call in the guarantee. , but more expensive (see Q&A 15 and following); or
buying retail premises – usually the most expensive, but a very secure long-term solution (see Q&A 6 and following).
Buying business premises offers you the best long-term Also known as a debenture, charge or mortgage, security over an asset or assets (such as cash, debts, real estate or equipment) is given by a borrower (and sometimes a third party such as a shareholder of the borrower) to a lender in case the borrower fails to make a payment due. Security is also used to refer to a personal guarantee of a borrower's payment obligations to a lender, typically given again by a shareholder and sometimes secured over the shareholder's personal assets. In the event of a borrower's failure to make a payment due to a lender, the lender will have the right to sell any asset secured or call in the guarantee. and stability, but it will likely be a big financial commitment for your business (see Q&A 7 and following).
If you purchase your business premises, you will have much greater control over the way in which you use them. For example, subject to obtaining the appropriate planning permissions you will be able to make whatever alterations and repairs to the premises that you want. For example, you may be able to extend the premises or make significant changes to the interior layout to better suit the needs of your business. However, if you do need to relocate for any reason, it is likely to be more difficult, time consuming and costly than it would be if you were simply renting your premises. If it is important for you to be able to have some flexibility about your business premises, see Q&A 3 for more suitable arrangements.
Having full control over your business premises also means that you may have the option of letting any part of it that you are not using in order to make some additional income for your business. You should check with your A loan (usually to an individual or individuals) to purchase a property, which is secured on the property. provider before doing so in case it is against the terms of your A loan (usually to an individual or individuals) to purchase a property, which is secured on the property..
While purchasing business premises can be a good financial investment if property prices rise, bear in mind that you will also be exposed to any drop in the value of the property. Equally, there are various costs involved in purchasing business premises which can make it an expensive option for your business, particularly in the short-term. The main costs that you should (In finance) A financier who provides finance to a business by buying the business's debts under the terms of a factoring agreement. in are:
deposit and A loan (usually to an individual or individuals) to purchase a property, which is secured on the property. payments (see Q&A 8);
fees (see Q&A 9);
Value Added Tax. A type of tax which is charged when goods or services are supplied to a person in the UK. (in some cases) (see Q&A 10);
Stamp Duty (Stamp duty land tax. A tax payable on certain transactions relating to land or buildings (for example: purchase of freehold) where the price paid exceeds a specific threshold. ) (see Q&A 11);
A tax paid on any area of a building or piece of land which is used for business purposes. Local councils send a bill for any business rates owed in February or March of each year. It is effectively council tax for businesses. (see Q&A 12); and
running costs (see Q&A 14).
If you cannot afford to buy your business premises outright, you will usually need to take out a commercial A loan (usually to an individual or individuals) to purchase a property, which is secured on the property.. These tend to require a substantial deposit (eg often around 25% of the value of the premises), which will tie up capital that you will then be unable to invest in your business in other ways.
Your A loan (usually to an individual or individuals) to purchase a property, which is secured on the property. repayments could be more than you would pay in rent, but if you have a fixed rate commercial A loan (usually to an individual or individuals) to purchase a property, which is secured on the property., you will have much more certainty about your costs as you will not be at risk of rent increases by a landlord (upwards only rent reviews tend to be a feature of longer tenancies). Bear in mind, however, that if you have a variable rate A loan (usually to an individual or individuals) to purchase a property, which is secured on the property., you will be exposed to interest rate increases.
There are various fees involved in purchasing a business premises as you will need to pay various professional advisers. These could include:
A loan (usually to an individual or individuals) to purchase a property, which is secured on the property. fees;
valuation fees;
solicitors' fees (yours and your lender's if you are taking out a A loan (usually to an individual or individuals) to purchase a property, which is secured on the property.);
fees for conveyancing searches and enquiries; and
surveyor's fees.
In some limited circumstances (eg if the premises are less than three years old), Value Added Tax. A type of tax which is charged when goods or services are supplied to a person in the UK. may be payable on the purchase price of your business premises. You may be able to reclaim this Value Added Tax. A type of tax which is charged when goods or services are supplied to a person in the UK.; speak to your accountant to confirm this before taking action.
A tax payable on certain transactions relating to land or buildings (for example: purchase of freehold) where the price paid exceeds a specific threshold. Also known as SDLT. (Stamp duty land tax. A tax payable on certain transactions relating to land or buildings (for example: purchase of freehold) where the price paid exceeds a specific threshold. ) is payable on most commercial property purchases. Depending on the value of the premises, Stamp duty land tax. A tax payable on certain transactions relating to land or buildings (for example: purchase of freehold) where the price paid exceeds a specific threshold. is charged at a rate of up to 5%. If the value does not exceed £150,000 no Stamp duty land tax. A tax payable on certain transactions relating to land or buildings (for example: purchase of freehold) where the price paid exceeds a specific threshold. is payable. His Majesty’s Revenue and Customs. The government authority which oversees tax and customs. has a helpful SDLT calculator. Full guidance about your tax obligations when purchasing property are outside the scope of this service.
A tax paid on any area of a building or piece of land which is used for business purposes. Local councils send a bill for any business rates owed in February or March of each year. It is effectively council tax for businesses. are taxes charged annually by your An administrative body in local government, responsible for the provision of public services in each district, borough or council.on almost all commercial properties.
A tax paid on any area of a building or piece of land which is used for business purposes. Local councils send a bill for any business rates owed in February or March of each year. It is effectively council tax for businesses. are usually payable by the occupier of business premises rather than the owner, so you will need to budget for them regardless of whether you buy or rent. The bill usually arrives in February or March.
You can get an estimate of the A tax paid on any area of a building or piece of land which is used for business purposes. Local councils send a bill for any business rates owed in February or March of each year. It is effectively council tax for businesses. for any premises you are considering on the Valuation Office Agency's website. You will also be responsible for paying any other An administrative body in local government, responsible for the provision of public services in each district, borough or council.charges levied on businesses in your area (eg waste collection).
If you own your business premises, you will be responsible for paying all associated running costs (eg any A charge levied against a tenant, usually to pay for the provision of services at, and maintenance of, the rented premises. for common parts of the building and the expense of lighting, heating and cleaning etc). The seller of the premises is legally obliged to provide you with an Energy Performance Certificate (EPC) before you buy, which can help to give you an indication of what some of these costs might be. The EPC will provide you with information about the premises' energy usage and typical energy costs, along with recommendations about how to reduce these.
As owner of the premises, you will also have sole responsibility for any repairs and maintenance work that need to be carried out and you will need to ensure that you put in place an adequate buildings insurance policy.
There are three main types of tenancy:
a A tenancy which runs for a set period of time before ending (as opposed to a periodic tenancy, which will renew at its end date rather than end unless steps are taken to terminate it). (see Q&A 16);
a A business tenancy which is not for a fixed term, but which renews automatically eg from month to month or quarter to quarter. (see Q&A 17); and
a A type of business tenancy under the Landlord and Tenant Act 1954 which gives the tenant the right to stay in the premises after it ends and request a new tenancy, whilst limiting the grounds on which the landlord can object., which can be for a fixed term or periodic (see Q&A 18).
A A tenancy which runs for a set period of time before ending (as opposed to a periodic tenancy, which will renew at its end date rather than end unless steps are taken to terminate it). is one which runs for a set period of time before ending, as opposed to a A tenancy which is not for a fixed term, but which renews automatically eg from month to month or quarter to quarter., which will renew at its end date rather than end unless steps are taken to terminate it. See Choosing between protected and unprotected tenancies for a comparison of your main rights and responsibilities under protected and unprotected tenancies.
A A tenancy which is not for a fixed term, but which renews automatically eg from month to month or quarter to quarter. is one which is for a particular length of time which repeats on a rolling basis (eg quarterly). It automatically continues in this way until either you or the landlord give notice for it to end. It gives you more immediate flexibility to leave the business premises than you would have if you took out a long A tenancy which runs for a set period of time before ending (as opposed to a periodic tenancy, which will renew at its end date rather than end unless steps are taken to terminate it). or purchased your business premises. See Choosing between protected and unprotected tenancies for a comparison of your main rights and responsibilities under protected and unprotected tenancies.
A type of business tenancy under the A piece of legislation that governs the relationship between landlords and tenants of business premises, giving particular protections to the tenant, most notably a right to renew the tenancy in some circumstances. which gives the tenant the right to stay in the premises after it ends and request a new tenancy, whilst limiting the grounds on which the landlord can object. It is also sometimes referred to as a '54 Act tenancy'. See Choosing between protected and unprotected tenancies for a comparison of your main rights and responsibilities under protected and unprotected tenancies.
Renting business premises can provide you with a reasonably secure alternative to buying them, in a fraction of the time and usually at a much lower cost.
It will be easier and quicker for you to relocate (eg if you outgrow your current premises) than if you own the premises and need to sell in order to release your capital. This will ultimately provide you with greater flexibility.
Equally, you can negotiate with your prospective landlord as to your responsibilities for maintenance and repair. Your obligations will depend on the terms of your business tenancy, but, if you are renting a unit in a larger building, or a whole building for a very short time, it is normal for your landlord to retain overall responsibility for maintaining the structure. Bear in mind, however, that you will not have as much flexibility or control over making alternations to the premises as if you have bought them. You will need to carefully check the terms of your tenancy agreement to ensure that you are able to make any alternations that will be vital to your business. If you know that the business premises you intend to rent will require some alterations before you can use them, you can ask for a rent-free period from your landlord to cover the time you need to carry them out and settle in afterwards; see Q&A 42 and following for what to look for in a tenancy agreement before you sign it.
For a general overview of the key pros and cons of taking of buying and renting, see Choosing your business premises.
No. The point of a tenancy is that the tenant is the only one who is entitled to come and go as they please from the business premises. This right is sometimes called The right to use premises as one's own to the exclusion of all others, including any landlord. A key ingredient of any lease., or in this context, the right to quiet enjoyment.
This does not normally mean that you can bar your landlord entirely from the premises for your entire tenancy. You tenancy agreement will almost certainly give your landlord the right to come into your premises by prior arrangement with you, for example to carry out maintenance checks. A requirement to give reasonable notice (or sometimes 24 to 48 hours' notice) is standard.
It depends on the type of tenancy you have.
If your tenancy qualifies as a A type of business tenancy under the Landlord and Tenant Act 1954 which gives the tenant the right to stay in the premises after it ends and request a new tenancy, whilst limiting the grounds on which the landlord can object., you have an automatic right to ask for a renewal and limit the circumstances under which your landlord is legally entitled to refuse. Most tenancies of business premises will qualify as A type of business tenancy under the Landlord and Tenant Act 1954 which gives the tenant the right to stay in the premises after it ends and request a new tenancy, whilst limiting the grounds on which the landlord can object., unless you and your landlord specifically agree your tenancy will not be protected. See Q&A 18 and Choosing between protected and unprotected tenancies for a comparison of your main rights and responsibilities under protected and unprotected tenancies.
If your tenancy is not a A type of business tenancy under the Landlord and Tenant Act 1954 which gives the tenant the right to stay in the premises after it ends and request a new tenancy, whilst limiting the grounds on which the landlord can object., you can still renew it by agreement with your landlord, but they will have much more freedom to refuse or significantly change the terms of your tenancy agreement for the renewal.
See Renewing or extending any business tenancy for how to go about the renewal process.
Yes, if your tenancy agreement says so, or you have otherwise agreed it with your landlord.
The shorter your tenancy, the less likely you are to be entitled to carry out alterations to the premises to suit your business.
If you know that the business premises you intend to rent will require some alterations before you can use them, you could ask for a rent-free period from your landlord to cover the time you need to carry them out and settle in afterwards; see Q&A 42 and following for more information on negotiating the terms of a tenancy.
While renting rather than purchasing your business premises will not tie up as much of your capital initially, there are still various costs involved in renting that you must bear in mind:
rent and deposit (see Q&A 24);
fees (see Q&A 25);
Value Added Tax. A type of tax which is charged when goods or services are supplied to a person in the UK. (see Q&A 26);
Stamp Duty (see Q&A 27);
A tax paid on any area of a building or piece of land which is used for business purposes. Local councils send a bill for any business rates owed in February or March of each year. It is effectively council tax for businesses. (see Q&A 13); and
running costs and/or A charge levied against a tenant, usually to pay for the provision of services at, and maintenance of, the rented premises. (see Q&A 28).
You will typically need to pay a deposit when taking out a A tenancy which runs for a set period of time before ending (as opposed to a periodic tenancy, which will renew at its end date rather than end unless steps are taken to terminate it). . This will be negotiated with your landlord, but could be, for example, six months' rent. You may also be required to pay an upfront premium for the tenancy in some circumstances, for example if the rent is below market value, or the tenancy long.
You must also bear in mind that whatever rent you negotiate with your landlord may be subject to periodic rent reviews. This is particularly common in tenancies over five years long. Rent reviews are typically on an upwards only basis.
Fees will probably be limited to any solicitors' fees if you seek professional advice to negotiate your business tenancy agreement and small fees for any searches that you carry out. For example, a search of Companies House if your landlord is a business to check whether it is solvent and searches of the Land Registry to get copies of the landlord's title.
If your business tenancy is for more than seven years, you will also need to pay a fee to register it at the The statutory body which runs the official Land Register, on which the registration of all land is stored.. Full guidance about land registration is outside the scope of this service and you should instruct a solicitor to assist you.
In some situations it may also be advisable for you to carry out a full survey of the property (eg if you will have substantial obligations to repair the premises in the tenancy agreement) and you will need to pay any surveyor's fees and search fees associated with doing so.
In some circumstances, Value Added Tax. A type of tax which is charged when goods or services are supplied to a person in the UK. may be payable on your rent payments, eg if your landlord has opted to pay it, although you may be able to reclaim this. Speak to your accountant about how best to deal with your Value Added Tax. A type of tax which is charged when goods or services are supplied to a person in the UK. liability.
Normally, only if your rent totals more than £150,000 over the fixed length of your tenancy. This means tenancies with a high rent or those over a long period are more likely to attract Stamp duty land tax. A tax payable on certain transactions relating to land or buildings (for example: purchase of freehold) where the price paid exceeds a specific threshold. . Be aware that Terms in tenancy agreements which give either tenant or landlord (or both) the right to end the tenancy early. cannot be used to avoid paying Stamp duty land tax. A tax payable on certain transactions relating to land or buildings (for example: purchase of freehold) where the price paid exceeds a specific threshold. ; it is payable by reference to the entire initial term of your tenancy, disregarding any A term in a tenancy agreement which gives either tenant or landlord (or both) the right to end the tenancy early..
If you are paying a premium for your tenancy, you will pay Stamp duty land tax. A tax payable on certain transactions relating to land or buildings (for example: purchase of freehold) where the price paid exceeds a specific threshold. on both the premium and the rent itself.
His Majesty’s Revenue and Customs. The government authority which oversees tax and customs. has a helpful SDLT calculator. Full guidance about your tax obligations when leasing a property is outside the scope of this service.
Check your tenancy agreement for exactly what you have to pay for.
Some running costs may be rolled up into a A charge levied against a tenant, usually to pay for the provision of services at, and maintenance of, the rented premises. due to your landlord. This is common if you take out a business tenancy of a multi-occupied building. What you will have to pay and the services you receive in return will depend on the wording of your A charge levied against a tenant, usually to pay for the provision of services at, and maintenance of, the rented premises. A provision or section. Usually in a contract. . See What a service charge covers for guidance.
You are likely only to be responsible for repairing and maintaining the interior of the premises (unless you are renting the whole building).
Your landlord is legally obliged to provide you with an Energy Performance Certificate (EPC) before you rent the premises, which can help to give you an indication of what some of these costs might be. The EPC will provide information about the premises' energy usage and typical energy costs, along with recommendations about how to reduce these costs.
In most cases, your landlord will be willing to enter into negotiations with you about the terms of your tenancy, and you should not assume that you must simply accept the initial terms presented to you. Q&A 42 and following give you an idea of what you should be looking out for.
When you are entering into negotiations about your tenancy agreement, from 1 September 2020, you may need to bear in mind the RICS Code for Leasing Business Premises, which comes into force on that date. It advises landlords that they should be aiming for terms that are fair between you and should approach negotiations in a constructive and collaborative way.
From 1 September 2020, the RICS Code for Leasing Business Premises makes it mandatory for their members to send you Heads of terms, also referred to as a letter of intent, heads of agreement or memorandum of understanding, is typically not legally binding (with possible exceptions sometimes, such as exclusivity and confidentiality), will be signed or agreed by two or more parties, and will set out, often in brief, key commercial points which form the basis for negotiations between the parties and a timescale for entering into a legally binding agreement. as part of your tenancy negotiations. Heads of terms, also referred to as a letter of intent, heads of agreement or memorandum of understanding, is typically not legally binding (with possible exceptions sometimes, such as exclusivity and confidentiality), will be signed or agreed by two or more parties, and will set out, often in brief, key commercial points which form the basis for negotiations between the parties and a timescale for entering into a legally binding agreement. are a written summary of what you have agreed. They are not the actual tenancy agreement – they will say they are A phrase used in negotiations which means that no legally binding agreement is created until a formal contract has been produced.. If you are sent Heads of terms, also referred to as a letter of intent, heads of agreement or memorandum of understanding, is typically not legally binding (with possible exceptions sometimes, such as exclusivity and confidentiality), will be signed or agreed by two or more parties, and will set out, often in brief, key commercial points which form the basis for negotiations between the parties and a timescale for entering into a legally binding agreement. during a tenancy negotiation, review them carefully to check you agree with what they say. They should cover the most important details like what you have to pay and when, what responsibilities you and your landlord will have to maintain the premises, and when and how you or your landlord can end the tenancy.
It will be your landlord's responsibility to write up these Heads of terms, also referred to as a letter of intent, heads of agreement or memorandum of understanding, is typically not legally binding (with possible exceptions sometimes, such as exclusivity and confidentiality), will be signed or agreed by two or more parties, and will set out, often in brief, key commercial points which form the basis for negotiations between the parties and a timescale for entering into a legally binding agreement. before a draft lease is put together.
If you want to check that Heads of terms, also referred to as a letter of intent, heads of agreement or memorandum of understanding, is typically not legally binding (with possible exceptions sometimes, such as exclusivity and confidentiality), will be signed or agreed by two or more parties, and will set out, often in brief, key commercial points which form the basis for negotiations between the parties and a timescale for entering into a legally binding agreement. from your landlord cover everything they should, you can find template Heads of terms, also referred to as a letter of intent, heads of agreement or memorandum of understanding, is typically not legally binding (with possible exceptions sometimes, such as exclusivity and confidentiality), will be signed or agreed by two or more parties, and will set out, often in brief, key commercial points which form the basis for negotiations between the parties and a timescale for entering into a legally binding agreement. , alongside a checklist of the information that should be included, appended to the RICS Code for Leasing Business Premises.
If you are considering a A tenancy which runs for a set period of time before ending (as opposed to a periodic tenancy, which will renew at its end date rather than end unless steps are taken to terminate it). you are likely to have some scope to negotiate terms with your landlord. The extent to which you are able to negotiate will depend on market conditions and how wedded your landlord is to a standard form tenancy agreement (likely to be more important for a landlord letting units in a shopping centre or office suites in a larger complex than a landlord renting out a whole building). Consider instructing a solicitor to assist you with any negotiations, particularly if you will be taking a tenancy with a long duration – it will likely represent a significant financial commitment for your business.
Whether or not you instruct a solicitor, you must ensure you understand your rights and obligations under any tenancy agreement before you sign. In particular, it is important that you understand what your full costs of occupying the premises will be and how long you will be liable for those costs. Key terms that you should look out for before entering into your tenancy agreement include:
what you are actually renting – the extent of the premises and your rights of access and use (see Q&A 43);
the type of tenancy on offer, in particular whether it will be a A type of business tenancy under the Landlord and Tenant Act 1954 which gives the tenant the right to stay in the premises after it ends and request a new tenancy, whilst limiting the grounds on which the landlord can object. which gives you stronger rights to stay in the property and renew the tenancy (see Q&A 45);
how long the tenancy is for and any terms about its renewal or early termination (see Q&A 46);
any (1) In the context of debt, a contract where someone agrees to pay if the debtor cannot pay themselves. (2) In the context of sale of goods, a promise to a customer which is given freely (without charging extra money) that the goods they are buying will meet certain standards, and if they do not the person making the promise will do something to make up for that (eg give a refund, or repair or replace the goods). you are asked for to cover costs if your business cannot pay, eg personal (1) In the context of debt, contracts under which one person agrees to pay the debtor's debts if the debtor cannot pay themselves. (2) In the context of sale of goods, promises to a customer which are given freely (without charging extra money) that the goods they are buying will meet certain standards, and if they do not the person making the promise will do something to make up for that (eg give a refund, or repair or replace the goods). from The directors of a company are the individuals who make up the company's board of directors. Directors may be natural persons or companies, but each company must have at least one director who is a natural person. The board is the main decision-making body of the company. (see Q&A 47);
the amount of rent and when it is payable (see Q&A 48);
any deposit (see Q&A 49);
A charge levied against a tenant, usually to pay for the provision of services at, and maintenance of, the rented premises. (see Q&A 52);
the landlord's control over your activities, including the extent to which they can stop you carrying out any alterations to the premises, eg adding signage to a shop front;
responsibility for repairs and maintenance (see Q&A 50);
whether there is an inventory of Things which have been added to a building or land. Fixtures are permanent or semi-permanent and require money or effort to remove, if they can be removed at all. Examples of fixtures include permanent walls and partitions, in-wall electrical wiring and windows. and inventory of condition (see Q&A 51); and
subletting rights that can give you flexibility in future if your circumstances change.
From 1 September 2020, the RICS Code for Leasing Business Premises will make it mandatory for The Royal Institution of Chartered Surveyors, a professional body which promotes and enforces standards to be applied by property professionals in valuing, managing and developing real estate. members to record the outcome of their negotiations about the terms of the lease in written Heads of terms, also referred to as a letter of intent, heads of agreement or memorandum of understanding, is typically not legally binding (with possible exceptions sometimes, such as exclusivity and confidentiality), will be signed or agreed by two or more parties, and will set out, often in brief, key commercial points which form the basis for negotiations between the parties and a timescale for entering into a legally binding agreement. (see Q&A 41).
Check the way in which the premises are described in the tenancy agreement to ensure that it covers what you expect to rent (eg the whole building or part of the building). This is important as you will need to be sure that you have any rights of access you require (eg over common parts of the building or for loading and unloading).
Beware if the description of the premises in the tenancy agreement includes any Things which have been added to a building or land. Fixtures are permanent or semi-permanent and require money or effort to remove, if they can be removed at all. Examples of fixtures include permanent walls and partitions, in-wall electrical wiring and windows. or fit-out that you put in. If they are included, they will become the landlord's property at the end of your tenancy.
Usually, any tenancy your business takes of premises from which it will operate is a A type of business tenancy under the Landlord and Tenant Act 1954 which gives the tenant the right to stay in the premises after it ends and request a new tenancy, whilst limiting the grounds on which the landlord can object. unless you and your landlord specifically agree otherwise. To avoid your tenancy being protected, your landlord must follow a set procedure to clearly notify you at the start of your tenancy before you give up your rights.
Your tenancy will not be a A type of business tenancy under the Landlord and Tenant Act 1954 which gives the tenant the right to stay in the premises after it ends and request a new tenancy, whilst limiting the grounds on which the landlord can object. if it is very short – for a fixed period of six months or less.
See Choosing between protected and unprotected tenancies for help on how to know if your tenancy will be protected.
See Choosing between protected and unprotected tenancies for help on the differences between the two. The main difference is how tenancy renewals are dealt with.
If your tenancy is a A type of business tenancy under the Landlord and Tenant Act 1954 which gives the tenant the right to stay in the premises after it ends and request a new tenancy, whilst limiting the grounds on which the landlord can object. (see Q&A 44), you have the right to stay in the premises after the term of your tenancy runs out, and you have the right to a new tenancy agreement. Your landlord can only refuse a renewal on a very limited number of grounds, eg if you have not complied with the terms of the tenancy, or if the landlord needs the premises back to move in themselves.
If your tenancy is not protected, you rights to renew are limited to whatever the tenancy agreement says about them.
If you might need some flexibility, you can ask for a A term in a tenancy agreement which gives either tenant or landlord (or both) the right to end the tenancy early. in your tenancy allowing you to get out of it early. Be aware, however, that Terms in tenancy agreements which give either tenant or landlord (or both) the right to end the tenancy early. cannot be used to avoid paying Stamp duty land tax. A tax payable on certain transactions relating to land or buildings (for example: purchase of freehold) where the price paid exceeds a specific threshold. ; it will be payable by reference to the entire initial term of your tenancy, disregarding the A term in a tenancy agreement which gives either tenant or landlord (or both) the right to end the tenancy early..
If you do negotiate the inclusion of a A term in a tenancy agreement which gives either tenant or landlord (or both) the right to end the tenancy early., ensure that you understand how it works (ie when and how you can give notice to terminate the tenancy agreement early) and try to ensure that there are no complex conditions attached to it (eg that you can simply terminate by giving a certain amount of notice). It is important because if you want to use the A provision or section. Usually in a contract. , you must follow it exactly, otherwise your notice will not be effective and the tenancy will continue, even if both you and your landlord know that you were trying to end it.
If your business is new, small or does not have a strong trading history, your landlord may require a Where an individual promises to provide a payment or some form of benefit in the case of some form of loss occurring. A personal guarantee may be, for example, to pay an amount of an individual's own money to a bank in the event that a company becomes insolvent. for the rent and any other charges, usually from a The directors of a company are the individuals who make up the company's board of directors. Directors may be natural persons or companies, but each company must have at least one director who is a natural person. The board is the main decision-making body of the company. of the business.
It is a good idea for any such Someone who agrees to uphold someone else's obligations in a contract if that other person fails to do so. to get independent advice about what they are agreeing – their interests may well conflict with those of the business and it is important that they know what their exposure will be in the event that the business fails to pay.
Check the rent Provisions or sections. Usually in a contract. in the tenancy agreement to ensure that you understand how and when your rent will be payable. Rent will typically be payable monthly or quarterly in advance, although a grace period of 7 to 14 days can usually be negotiated to avoid small interest charges if there is any administrative delay to your payments. If you run a retail or restaurant type business, you may be charged The amount of money taken by a business, before deductions (eg expenses, tax etc). rent in addition to your base rent (ie rent assessed usually as a percentage of your gross The amount of money taken by a business, before deductions (eg expenses, tax etc).).
When negotiating rent, it can help to carry out a survey of the premises to establish the extent of any disrepair or defects. If you know that the premises will require some alterations before you can use them, ask for a rent-free period from your landlord to cover the time you need to carry them out and settle in afterwards. You can use the rent saved to offset the cost of the works. This is standard commercial practice, although your negotiating position and the length of rent-free period you can secure will be heavily dependent on the state of the property and the strength of the rental market at the time.
If your tenancy is over three to five years, the agreement will generally include provisions for a rent increase (eg either a set rent increase or a A reassessment by a landlord of the rent payable under a tenancy, taking place in accordance with the terms of the tenancy and often upwards-only.). Rent reviews are typically on an upwards only basis, but you may want to try and negotiate the right to end the tenancy after a A reassessment by a landlord of the rent payable under a tenancy, taking place in accordance with the terms of the tenancy and often upwards-only. (or a cap on how much rent can rise) in case it is put up too much.
Yes. If you are required to pay a deposit, ensure that your landlord holds it in a stakeholder or escrow account on your behalf, rather than simply keeping it with their own funds. This means that if they become Unable to pay debts as they become due., you do not lose your deposit to other People or businesses to whom money is owed. . You should also ensure that it is earning an acceptable rate of interest for the duration of your tenancy, and that it is either paid to you periodically, or collected in the same account.
Check the repair and maintenance Provisions or sections. Usually in a contract. to see what obligations you have. You will typically want to ensure that your liability for repairs and maintenance is leaving the premises in the same state as you found them, although if you plan to carry out alterations, be aware that this can include requiring you to undo them before you move out. You should also check who has responsibility for maintaining any common areas in shared premises.
See Alterations during the tenancy and Repairing the premises during the tenancy for full guidance about repairing and maintaining your business premises.
Yes. It is good practice to agree an inventory of Things which have been added to a building or land. Fixtures are permanent or semi-permanent and require money or effort to remove, if they can be removed at all. Examples of fixtures include permanent walls and partitions, in-wall electrical wiring and windows. and an inventory of the condition of the premises before you move in. It will help you to highlight anything you want the landlord to repair before you move in, and to check against any repairing obligations that the tenancy agreement puts on you to ensure you are not being required to improve the premises without compensation eg a lower rent overall or rent holiday at the start of your tenancy.
Schedules will also help you to avoid any dispute at the end of your tenancy as to whether you have left the premises in an acceptable condition. See Practicalities when leaving business premises for guidance.
You will almost always have to pay a A charge levied against a tenant, usually to pay for the provision of services at, and maintenance of, the rented premises. to your landlord if you A share in the capital of a company (sometimes also referred to as stock, for example in relation to US companies). Shares in a company give to the holders, known as shareholders, rights in relation to that company such as to vote, to receive dividends and to a return of capital. Holders of shares in a company own that company and the company, not its shareholders, owns the company's assets. a building with other business tenants. It is important that before signing a tenancy agreement you carefully check what is included in the A charge levied against a tenant, usually to pay for the provision of services at, and maintenance of, the rented premises. to ensure that it is fair and that you are not paying for services that you will not benefit from. You could consider negotiating an annual cap on what the landlord can charge as A charge levied against a tenant, usually to pay for the provision of services at, and maintenance of, the rented premises..
If there is a A charge levied against a tenant, usually to pay for the provision of services at, and maintenance of, the rented premises. A provision or section. Usually in a contract. in your tenancy agreement, key points you should look out for are:
Amount of the charge
Sometimes a A charge levied against a tenant, usually to pay for the provision of services at, and maintenance of, the rented premises. is a fixed amount, other times it can be calculated as a proportion of overall costs to be decided by a A person who is not directly involved in an existing relationship, transaction or dispute; for example, someone who is not a named party in a contract. such as a surveyor or accountant.
The Also known as RICS, the Royal Institution of Chartered Surveyors is a professional body which promotes and enforces standards to be applied by property professionals in valuing, managing and developing real estate. (The Royal Institution of Chartered Surveyors, a professional body which promotes and enforces standards to be applied by property professionals in valuing, managing and developing real estate.) has published a statement (the RICS Professional Statement) which recommends best practice on business tenancy service charges.
Expect to see reasonable charges for repairs, maintenance and replacement of the fabric of the building and any plant or equipment needed to operate it.
Repairs and improvements
Unless your tenancy agreement expressly says so, your A charge levied against a tenant, usually to pay for the provision of services at, and maintenance of, the rented premises. should not be used to fund improvements to your landlord's property. The difference between improvements and repairs to the property is not always clear. As a rule of thumb, if your landlord’s actions introduce something of a different kind to what was originally there, then this activity is an improvement.
See Alterations during the tenancy and Repairing the premises during the tenancy for full guidance about repairing and maintaining your business premises.
Management fee
Your A charge levied against a tenant, usually to pay for the provision of services at, and maintenance of, the rented premises. A provision or section. Usually in a contract. will typically allow your landlord to recover the costs of a managing A person who acts on behalf of another (eg an employee or a solicitor). .
Sinking or reserve fund
Check if you are required to pay contributions to a sinking or reserve fund and if so, how the fund is held until used. The purpose of such a fund is to build up reserves to meet future expenditure and avoid having to ask for a large sum when the money is required.
A charge levied against a tenant, usually to pay for the provision of services at, and maintenance of, the rented premises. reserved as rent
Look out for whether your A charge levied against a tenant, usually to pay for the provision of services at, and maintenance of, the rented premises. is reserved as rent under your business tenancy agreement. If so, your landlord may be able to In property: the right of a landlord to end a tenancy and reclaim possession of the property if the tenant does not comply with his obligations under the tenancy agreement. your tenancy if you do not pay the A charge levied against a tenant, usually to pay for the provision of services at, and maintenance of, the rented premises..
If you are taking out a A business tenancy which is not for a fixed term, but which renews automatically eg from month to month or quarter to quarter. you are likely to have some scope to negotiate the terms of your tenancy agreement with your landlord. It is advisable to instruct a solicitor to assist you with any negotiations of your tenancy agreement, particularly if you will be taking one of a long duration.
Whether or not you instruct a solicitor, see Q&A 42 and following for guidance about key terms that you should look out for before entering into your tenancy agreement. Bear in mind, however, that you will not have Terms in tenancy agreements which give either tenant or landlord (or both) the right to end the tenancy early. and/or renewal Provisions or sections. Usually in a contract. in your A tenancy which is not for a fixed term, but which renews automatically eg from month to month or quarter to quarter. (which you may have in a fixed term business tenancy). Instead you should ensure that you thoroughly check the termination provisions in your tenancy agreement so that you understand how and when you can bring your tenancy to an end. For example, make sure you are clear on how much notice you will need to give, and when and how your landlord can end your tenancy.
If you are taking out a licence to occupy your business premises, you are likely to have less scope to negotiate the terms than if you were taking out a tenancy, given that licences are typically for very short periods (eg up to one year) and tend to be very straightforward agreements. Key terms that you should look out for in your licence agreement include:
Term
Licences are typically for short periods of time, with no automatic right to renew once the term expires. They have short notice periods (eg one month or less) so check to make sure there will be enough time for you to move your business elsewhere if your landlord gives notice.
Rent and deposit
Check whether Value Added Tax. A type of tax which is charged when goods or services are supplied to a person in the UK. is being charged on the licence fee as even if it is not now, the landlord made need to charge it at a later date.
You will usually be required to pay a rent deposit (eg one month's licence fee). Ask where the deposit will be held by the landlord, what deductions they can make from it and when your deposit will be refunded to you.
Access and control
Check whether your access to the premises will be restricted (eg to certain times of the day). For example, if you are taking a licence over a concession area inside larger premises, your access may be restricted to times that the rest of the premises are open.
Check what control you will have. For example, whether you are permitted to put up signage or branding outside (if appropriate). You may also need the landlord's permission to bring any furniture or equipment onto the premises.
Your landlord may reserve the right to move you to alternative premises (or an alternative location in the same premises) and retain the right to access your premises at any time. These are standard practice, but you can ask how common it is for your landlord to actually do these things.
Repair and maintenance
Resist any requirement in your licence for you to repair or maintain the premises – a requirement to keep it clean and tidy should be sufficient.