Growing room – property issues for expanding businesses
17th October 2014
WHEN it comes to property, every business faces similar issues.
Contrary to what the TV property programmes may tell you, for commercial purposes it isn’t just about location, location, location.
Flexibility and the opportunity to change premises as your business changes are at least as important as where your company is physically based.
You should consider your choice of property and location in the light of your overall business strategy.
For example, how many people are you intending to employ, both now and in the near future?
What transport links do you need to and from the site?
Are there businesses in the same location which would complement your company, such as a cluster of creative industries businesses?
How much physical space do you need now and as the business grows?
And – very importantly – how much money do you have to spend on your property?
Once you have worked through those issues and have a shortlist of potential sites, it is worthwhile considering some fundamental factors about your chosen premises. These include:
- The state of repair of the building – if it requires additional work to bring it up to your expectations, you will need to allow for additional time and money which may impact on your business.
- The planning permission covering the building – if your proposed activities are different to those which previously happened at the site, you may need to apply for permission for a change of use.
- Restrictions on matters such as opening times – if the building is near to a residential area, your hours of operation may be restricted so as not to disturb residents at night times or weekends.
- The suitability of facilities – if your business has particular requirements, it may need specialist premises or have adaptations made to existing premises in order to carry out your work.
- The availability of grants and incentives – properties in some locations can come with incentives such as rent-free periods, relocation grants or reduced business rates. You should take these into account when making your decision, but don’t let them cloud your overall judgement.
- Your future plans – to make a truly informed decision, think about what your business will look like in three to five years’ time. Will there be enough room for your staff or will you be wasting money on space you don’t use?
Securing the property of your choice can usually be approached via three main routes: licensing, leasing or purchasing.
Licensing is the most flexible option and is usually offered only on a very short-term basis. Essentially, the owner of the building grants you a licence to operate within it.
Licensing is particularly useful for businesses lacking substantial financial backing and for those who want to be able to move premises quickly or regularly.
However, it does not offer you any security of tenure as you are at the whim of the licensor and you also need to take good legal advice because some agreements which are marketed as licences can sometimes effectively be leases in legal terms.
A lease is a binding contract between a property owner and the person or business renting it. If you sign up to a lease, you cannot walk away from the property without legal redress, but at the same time you do have greater security of tenure.
When signing a lease, you should consider the length of term you are signing up for, whether that includes a break clause which allows you to terminate the agreement and what conditions are attached to the lease.
Good legal advice is essential to ensure you address issues such as service charges, rent reviews and repair and reinstatement clauses.
Purchasing a property is probably most appropriate in a situation where you don’t envisage changing premises at regular intervals.
As the owner of a property, you will probably have more freedom of action than as a tenant and you will not have to deal with issues like rent reviews and dilapidations so there will be less of an ongoing administrative burden.
However, you will still need to insure and repair the building and make sure the planning permission is suitable.
You will also need to make sure that the property is the right size for your business. With this in mind, it is a good idea to check out the situation with regard to planning permission for potential extensions or to see examine the possibility of purchasing nearby buildings as your business grows.
Whichever route you decide to take, choosing a property to locate your business is a vital decision which may have a crucial bearing on the continued growth of your company.
Partner, Head of Property
* For more information on the issues raised by this article, please contact Neil Robson.
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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