Room to grow
23rd March, 2016
Whilst this may be particularly so for those who are manufacturing companies (where increases in output, or the installation of specialist machinery to transform production methods, bring both their own rewards and their own demands), it is no less important for businesses in the services sector to ensure sufficient space to accommodate a growing workforce.
There are a number of solutions to the issue. If the conditions and site allow, staying put and carrying out alterations or additions to existing premises, may seem an ideal solution (and offers the advantage of the goodwill a known location can generate).
Before starting work on such a project, however, it is essential to know what consents, such as planning permission and building regulation approval, might be required, and whether the approval of a landlord, and any mortgagee, will be forthcoming. It should also be remembered that buildings installed on leased premises may pass to the landlord, at the end of the lease, without compensation.
In addition, the intensification of activity on a site may bring its own problems from neighbouring businesses or homes.
Carrying out development work on land which is owned by the company may bring its own problems. Examples might be the triggering of payments to parties with historical interests in the property, or interfering with existing, and enforceable, rights of others (rights to light being one which is well known but not always well understood by landowners).
If third-party premises are to be occupied, under some informal sharing, short-term serviced accommodation, licences or an informal lease, it is essential to make sure these arrangements are correctly documented. This is essential to guarantee the flexibility which a fast-growing business might require, whilst leaving things to chance can carry major risks.
Securing and retaining the right property, on the right terms for the business and with (perhaps) a planned exit route should the size of the business demand further change, is an important objective for any successful enterprise.
Ensuring premises will remain suitable when a company’s growth path is unpredictable will illustrate the advantages of a degree of flexibility in property arrangements.
This can be achieved in a number of ways. For example, you might negotiate terms at the outset of your agreement to include early termination in certain circumstances or at certain intervals.
If moving somewhere else to cope with a company’s expansion, the need to consider exercising existing termination rights may arise. These “break” arrangements can have pre-conditions which must be satisfied in full before the break can occur. Get it wrong and the financial and operational costs can be severe.
Quality legal advice is essential, whether in dealing with works on a pre-existing site or in a new build at a different location. Agreeing contracts with architects, designers, building contractors and consultants, including such things as warranties and guarantees for substantial items of works and materials, is vital in protecting the value of a company’s investment, for many years after the project has finished.
Finally, what if you think you will need more room in the near future but don’t want to pay for empty space now?
One method to secure future additional space might be to agree an option agreement, or some right of pre-emption, with the owner/landlord over property required for future expansion.
Whilst this may not be an owner’s/landlord’s first choice, the advantage to a growing business is an ability to move quickly, and at the right time, to premises which are already in place and known to be appropriate.
* This article first appeared in the Ward Hadaway Yorkshire 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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