More space – to take or to create?
10th March, 2016
FAST-growing businesses often face the challenge of acquiring more space from which to operate.
Solutions can involve expanding an existing property, or moving into a new one.
Securing and retaining the right property needs to be on the right terms for you, and potentially allow an exit route when the shape and size of your business changes.
You may be able to carry out alterations and/or construct new buildings on existing premises that you own. You should determine whether you need consents such as planning permission, building regulation approval, authority from landlord’s and mortgagee’s and/or from neighbours.
Carrying out development works may increase capital values and trigger payments to parties who have historic interests in the property, or could interfere with existing rights of others. Contracting with designers, building contractors and consultants can be complex, and you should ensure you get what you are expecting in a timely manner, including warranties and guarantees for substantial items of works and materials, to protect you and its value for years after the project has finished.
A future buyer of your interest would usually look for the same things and any voids may affect a sale price. Get a legal specialist to check these out with you in advance to ensure there are no surprises along the way.
Many businesses take occupational interests in premises from third party owners, whether by way of informal sharing, short-term serviced accommodation, licences or more formal leases.
Documenting these arrangements correctly is essential to guarantee the flexibility fast-growing businesses require. Leave this to chance and it can carry great risks.
You could negotiate terms at the outset to include early termination in certain circumstances or at certain intervals, or you may need to consider exercising existing termination rights if swapping to somewhere else.
These break arrangements often have pre-conditions which need to be satisfied in full before the break can happen. Get it wrong and the financial and operational costs can be severe.
A cost-effective way to secure future additional space that might not be needed immediately is to agree an option agreement or pre-emption with the owner/landlord over property to allow for future expansion. With this, you could move quickly at the right time. You will need to decide whether to fix the terms of occupation at the outset.
Always ensure your property arrangements fit in with any funding, accounting and operational requirements of the business. Beware of issues which may not initially appear to be property related.
This is where investment in the right professional advice can really pay dividends.
* This article first appeared in the Ward Hadaway Greater Manchester Fastest 50 2016 supplement. To read the supplement in full, please click here.
Please note that this briefing is designed to be informative, not advisory and represents our understanding of English law and practice as at the date indicated. We would always recommend that you should seek specific guidance on any particular legal issue.
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