July 2010 - 10 tips for SMEs taking a business lease

In this article Cousins Business Law managing partner, Gary Cousins, offers his views on the need for politicians to champion the needs of SMEs.

The Emergency Budget showed that the government is seriously committed to reducing the budget deficit, primarily through public sector cuts and an increase in VAT.

Predictably the politicians have since been arguing about whether this is too much too soon (with the risk of a double-dip recession) or exactly what was needed due to the frightening increase in the deficit. Whilst all this argument makes good headlines for the politicians, the truth is that no one can say for sure how the economy will perform.

This leaves SMEs in a difficult position when it comes to planning for the future. Will there be growth or not? When will it be time to start investing in new projects and jobs? I believe that the uncertainties will mean that many SMEs will still be focusing on survival or slow growth rather than investing heavily. What is needed is an injection of confidence into the economy but the politicians won’t be providing that at the moment: the government needs to stress how bad things are to minimise opposition to their spending cuts and it serves the opposition to argue that government policy will only make things worse.

Nevertheless, some of the statistics seem encouraging. The last published insolvency figures (for the year to April 2010) showed an overall drop in business insolvencies compared to the year before (11.4%), with businesses between 51 and 100 employees showing the most insolvencies and businesses under 26 employees the least.

According to Experian, micro businesses with 1 to 2 employees are fairing best, and this correlates with Companies House statistics that new company registrations are up 10% compared to the year before. It appears that, as in previous recessions, many people made redundant are now starting their own businesses. Some of the budget measures will assist these small firms.

Business confidence overall will not return until we see a period of economic stability and sustained growth. I fear that this will not happen until we have seen how the public sector cuts and VAT rise affect demand overall, and it will still be at least another year before we will know that for sure.

However, I believe that what SMEs really need now are some politicians to champion our sector and to start talking in more optimistic terms. We know things are still not good; what we need is to see the light at the end of the tunnel.

Our commercial property team is often asked by business owners for help when they are taking a lease of commercial premises. Unfortunately, this is usually after the main terms have already been agreed in principle.

Ideally you should get your solicitor involved before agreeing terms as various concessions can usually be negotiated that can save time and money for your business both immediately and in the future.

Listed below are the 10 key points to consider when talking to the landlord or their agent:

1. Ask the landlord for a rent free period;
2. Include a break clause allowing the you to end the lease early;
3. Insist on a photographic schedule evidencing the condition of the premises to prevent disputes at the end of the term;
4. Decide whether it would be better to give the landlord a rent deposit rather than personal guarantees by the directors;
5. Try to agree a Service Charge cap;
6. Get any fit-out works and signage approved;
7. See if the landlord will agree to a rent that goes down as well as up on review;
8. Be aware - it is not standard practice for the tenant to pay the landlord’s legal fees on the grant of a new lease;
9. Keep the right to renew the lease where possible, especially if location is essential to the business like a restaurant, for example;
10. If Stamp Duty is payable this can be reduced by taking a shorter lease with an option for you to renew.

And the bonus tip – involve an experienced commercial property solicitor at an early stage to ensure you get the best deal and avoid lock-ins you want to avoid. Call Paul Harrison on 01604 456 591 for further advice.

Buying business premises? Download the Quick guide to buying business premises.

In a flurry of activity, the last government introduced electronic licensing during the last few months of 2009. The promise was that licensed premises and even organizers would be able to apply online for Temporary Event Notices, Premises Licences and licence variations.

Over six months on and nothing has changed. The promise of streamlined systems and potential saving in red tape and costs has simply not materialised. Our licensing expert, Nigel Musgrove, refuses to use the new online system because of the uncertainties, and his fellow professionals seem to be sharing his distrust.

For those brave enough to give it a go, it is difficult to identify the few Licensing Authorities who are actually able to undertake on-line licensing. It seems most do not have in place the necessary systems for processing the applications or for taking the on-line payment necessary for the applications to be valid.

It is unlikely that the situation will improve in the near future. With the new government and wholesale cuts, we suspect that Licensing Authorities will be tightening their belts further and will not be investing in systems for licensing online. So our advice to everyone is to stay with the paper applications, however tedious - better the devil you know.

For advice on licensing, contact Nigel Musgrove on 01285 847 001. 

You can download the following useful guides from the Cousins Business Law website:

• The definitive guide to solving business disputes
• Quick guide to buying business premises
• Guide to doing business in the UK

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