Your First Business Premises: Mistakes To Avoid

If your small business has seen a lot of growth, you may be realizing that your available space is too small, or that you’re losing out by having a workforce of purely remote employees. While commercial premises can be a necessity for many businesses, rushing into it creates room for a lot of costly errors. Here are some of the most common mistakes entrepreneurs make in the process…

Failing to Prepare for Rent Increases

Deposits on a commercial property often have an element to cover VAT if a tenant were to default. However, it’s not always possible to claim back VAT straight away, as landlords will often only issue an invoice for it in the event of overdue rent payments. Usually, with ten-year leases at least, the landlord will want to have a rent review provision in the fifth year, on an “upward only” basis. This will take open market values into account, and provide default provisions if there’s a dispute. While you’re looking at all the reception desks and modern art you want for your office, remember that you’ll have to accommodate for typical rent increases. Failing to budget for this can come back to bite you in a pretty severe way!

Forgetting the TLC

If the premises you’re going to rent needs a little TLC to get it suitable for your needs, then you may have some wiggling room to negotiate a rent-free period with the landlord. This can make all the difference to how financially feasible it is to keep the property as your business’s base of operations. Be sure to go over the details of the lease meticulously, and make sure there’s nothing that makes you liable to return the premises to the landlord in a better state of repair than when you started the lease. This can be glaringly unfair, but unfortunately, it’s perfectly legal! You should always make a point to check out the heating, electricity, water and any other services supplied to the property in order to minimize your obligations. As a bare minimum, you should be able to back this up with a photographic schedule of the property’s condition. Full repairing and insuring leases should only be taken as a last resort. Tread very carefully whenever you see the words “replace” or “repair”!

Not Having an Exit Strategy

Hopefully, you’ll be moving your operation into an office as a long-term decision. However, if there’s any possibility that you’ll want to terminate the lease early, it’s essential that you have agreed notice periods, which will mean that there won’t be any kind of penalties to pay, and that you’ll only have to pay up until the end of your notice, provided you vacate the property. As with a lot of short-term leases, the landlord may include a clause which means the lease is “outside the act”. This means that there would be no automatic right for you to renew it when it comes to the end of your lease. Always look ahead, even if you plan to hold the property for decades.

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