5 top tips for Leasing Premises in New Developments
Now that the property market is picking back up we are seeing many more new developments coming forward. For franchisees, taking a unit on a newly-built development brings with it a lot of advantages, such as having modern, energy efficient premises which are a blank slate for your business, but there are also some specific considerations which franchisees should consider at an early stage in the negotiations to make sure they are covered.
A few of tips for leasing new developments are set out below:
Double and triple check what you will be getting
Tenants should closely check any plans received for the development layout and check what the access routes will be and whether you will have access to area such as bin stores, service yards, shared estate signage to advertise your business on, car parks or other shared parts. Tell us if there is anything missing so we can ensure you can use the unit as you would expect! Also ensure that the cost of your fit out is taken account of.
Do you need additional planning permission and what conditions are attached?
If there is a recent planning permission, tenants will need to know who will be responsible for complying with the conditions and paying any planning contributions, and whether the permission lets you do what you want to on the property. In particular, planning permissions can restrict opening and delivery hours and the use of the property and require additional, separate approval for external air conditioning plant, vents and aerials. You might need to apply to vary the existing permission or apply for your own standalone permission to be able to operate. A good planning consultant is essential.
What warranties will the Landlord be able to give you?
On new buildings it is usual to get warranties from the Landlord’s design and construction team for the Tenant and the Tenant’s funder or bank. The covenant relating to repair in the lease will almost always require the Tenant to keep the premises in “good and substantial condition”. This means that the Tenant has to put right any disrepair, however minor. This is a particular issue on a lease of whole or a freehold, where the Tenant will take responsibility for the structure. Warranties allow Tenants to recover losses caused due to defective building or design directly from the Landlord’s construction team, for a period of 12 or 6 years after the unit is completed.
If the Landlord is not prepared to give warranties then Tenants should consider limiting the repair obligation so that they do not take responsibility for defects and instead it is for the Landlord to put these right (and recover the costs from the contractors itself if need be)
When will the development be finished?
This is a simple question but is often overlooked. Tenants should consider whether there are any critical dates to have the unit handed over so that the fit out can be ready for peak trading times. Tenants can consider negotiating target dates for completion of the construction and also “Liquidated and Ascertained Damages” or LADs. These place a fixed financial penalty for each week or day that the project overruns and compensates the Tenant for any losses caused by the delay and so must be a reasonable estimate of the losses likely to be incurred. For obvious reasons these clauses are by no means always acceptable to Landlords!
Landlord’s contributions and incentive payments
If the Landlord is offering an incentive payment to enter into the lease then you should check when this will be paid and whether the Landlord requires works to be carried out in return for the payment. Tenants should try to ensure the contribution is not in exchange for carrying out any works, as this can sometimes trigger the “Construction Industry Scheme”, a tax scheme where the landlord has to deduct tax from the its contribution at source. This can cause cash flow and accounting headaches and you should seek specialist tax advice in these situations. A way around this is to agree that the contribution is not in return for anything, but that it is only paid once the Tenant has taken occupation and starts trading. That way the Landlord will only pay once the works are carried out.
The content of this page is a summary of the law in force at the date of publication and is not exhaustive, nor does it contain definitive advice. Specialist legal advice should be sought in relation to any queries that may arise.
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