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How to rent commercial property
Renting property to expand or start up your business can feel stressful and overwhelming, but it doesn’t have to be. To help you through the process, we set out what to consider so you can rent commercial property without the worry.
Choose the right location
Setting up in the right location is undoubtedly one of the most important aspects you’ll need to think about. Bear in mind that it’s not just about the building itself, it’s also about the surroundings and local infrastructure; consider:
Customer footfall
If you rely on passing trade and customer footfall, take stock of existing businesses in the area and consider how your business might fit in. Don’t overthink competitors, unless there’s a direct overlap with what you’re selling, there should be enough points of difference for you both to flourish.
As well as position, look at commercial property through the eyes of a customer. Ask yourself, does the building look inviting or does it need external work to make it more appealing? If it does, think about the extent of work that needs to be done and how this fits in with your budget.
Transport and parking
You might not need good access to both, but they are areas that need strong consideration. As well as customer access, think about staff – where can they park, how much does it cost and is the commercial property accessible to staff who use public transport?
Also don’t forget about deliveries, especially if stock or equipment regularly arrives in heavy goods vans.
Amenities
Look at what’s nearby and whether these facilities will help draw customers to you or encourage staff to work for you. For instance, just having a sandwich shop, café or shops in walking distance can make it feel like your business is part of a wider community which can be good for staff morale, particularly if you’re looking at locations on industrial or business parks.
Broadband speed availability
If you rely on broadband (or a mobile phone signal) check what availability is like in the location you’ve settled on. Before you even make a final decision, have a quick look to see what deals are available and what download speeds you can expect.
Remember that the more people you need to get online, the more reliable and faster you’ll need broadband access and speed to be.
Think about the commercial property use class
Commercial properties in the UK are classified into use classes. These groups set out the type of activities the property can be used for.
If you come across a commercial property that you like the look of but that doesn’t have the right use class for your business or organisation, you can apply for a change of use. Be aware though that this is also likely to mean you have to apply for planning permission.
Currently, there are five main use classes, you can also find out more about how these work and how to apply for a change of use at the Planning Portal.
| Commercial property use class | Examples of activities covered |
|---|---|
| Class B | General industrial activities including storage and distribution |
| Class C | Properties where multiple people can reside including hotels and houses of multiple occupation (HMOs) |
| Class E | General business activities including retail, offices and service providers |
| Class F | Community and educational activities including schools, museums and village halls |
| Sui Generis | Encapsulates buildings that are legally defined as ‘of its own kind’ that cater for specific activities including theatres, cinemas and arcades. |
Consider all your commercial property costs
You’ll usually pay rent in advance every quarter, although some tenancies charge monthly. But on top of this, you’ll need to remember to add on one-off fees and ongoing costs which can include:
Deposit
This is typically three months’ worth of rent in advance, but some commercial property landlords ask for six months’ worth of rent as a deposit.
Letting agent fees
Costs for arranging the lease or professional advice depending on the services provided.
Stamp Duty Land Tax (SDLT)
This isn’t just charged on property when you buy it, it can also apply to lease agreements on properties valued more than £150,000. The total you’ll pay will depend on a number of factors including the length of the lease and the amount of rent you pay. You can find details about how this is calculated at GOV.UK.
Business rates
As a tenant, you’ll be expected to cover business rates which is calculated according to your business’ rateable value. This value is then multiplied by either the standard or small business multiplier.
If you’re looking at commercial property in Scotland, check mygov.scot for business rate information, or for Northern Ireland, visit NIBusinessInfo.co.uk.
Utilities
This will include gas, electricity and broadband. Remember that commercial energy contracts are often fixed for five years so make sure you leave enough time to shop around for the most competitive tariffs.
Waste collection
Unlike Council Tax, your business rates don’t cover the cost of rubbish collection, so this is another cost you’ll need to budget for.
Check the tenancy agreement
If you’re confident about reviewing tenancy agreements, there’s nothing to stop you from dealing with this yourself, but lease agreements are legally binding contracts. With that in mind, hiring a professional (for instance, a solicitor) to check the document for you could be a wise investment.
Not only will they be able to make sure everything is legal and above board, they’ll also be able to clarify aspects you might not be aware of or understand, for example:
- Length of lease and lease renewal – how long is the lease and what are your renewal options at the end of your tenancy (if any).
- Break clauses – is there a break clause and if so, when. For example, it could be after two years in a five-year tenancy.
- Subletting – if you find that the commercial property you’ve rented doesn’t meet your needs anymore, can you sublet it and if so, what are your responsibilities.
- Confirmation of when your rent is due – this could be monthly or quarterly.
- Tenant responsibilities – your tenancy agreement should clearly set out what you’re responsible for in terms of health and safety, maintenance and repairs.
- Local planning applications – it’s sensible to carry out some local searches to see if any nearby planning applications might affect your business. Similarly, it’s also worth finding out about proposed changes to road layouts or transport routes. Your local council should have local and neighbourhood plans that set out planning policies for your area.
A professional will also be able to negotiate points on your behalf so that you and your landlord end up with a tenancy agreement that you’re both happy with. You’ll need to settle any initial outstanding payments such as letting agent or management fees but when that’s done and the contracts signed, you’ll be able to move your business into your new property.
Arrange commercial property insurance
Your landlord will be responsible for insuring the building’s structure and any permanent and integral fixtures and fittings. In many instances, your landlord will include the cost of buildings insurance within your rental payment. Any items you bring to the property, including office furniture, appliances and equipment will be your responsibility and you’ll need appropriate contents insurance.
If you update or re-fit the building internally or adapt it to cater for your business, you’ll need to agree with your landlord who will be responsible for insuring these changes. However, in the majority of cases, if you make modifications, it’ll be down to you to arrange cover for those adaptations, which you can do with tenants improvement insurance. Bear in mind that who’s responsible for what in terms of insurance will also be set out in your tenancy agreement which is why it’s crucial to know and understand what’s in it.
You can find out more about protecting your assets as a commercial landlord or tenant in our guide to commercial property insurance. You can also save time by comparing a wide range of policies right here with our friends at QuoteZone.