Overview
The process of setting up a business can be exciting but also daunting when you must sign a lease on a property without knowing what any of the commercial terms mean. In this episode, solicitor Omair Ahmed explains the various key steps involved including Heads of Terms, Full Repairing and Insuring lease (FRI), a Schedule of Condition, Dilapidations and why Tacit Relocation will result in the automatic extension of a lease unless the appropriate notice is given by either side.He talks about the need to take advice to safeguard against an excessive dilapidations claim, to put in place measures such as rent reviews and to cap the liability on rent if, unfortunately, the business fails.
Purchasing commercial property is also discussed, from how to secure funding, why it’s best to put everything in a contract, and why, unlike residential property, a home report is not required and how LBTT applies to both leasing and purchasing commercial property.
And finally, Omair gives his top tips on commercial property matters.
Meet the contributors
Omair Ahmed
Director
Omair is partner at Austin Lafferty and the go-to guy for all things property law (and IT!). Outside of work he is married and has two young boys. As a result, much of his free time is spent wrestling and playing with hot wheels and Lego! When he gets a moment, he enjoys hillwalking (and is extremely pleased with his 54minute PB Tinto ascent!) and watching F1 (live when a sneaky opportunity presents!).
Angela Roberts
Producer & Host
Before becoming a freelance producer, Angela has had a long and varied career at the BBC – first as a radio producer on live topical phone in shows on BBC Radio Scotland and Radio 5 Live where she met and worked with Austin, before producing radio features for BBC Radio Scotland and Radio 4. She then moved to Digital Learning at BBC Scotland working on campaigns such as A History of the World in 100 Objects, Commonwealth Class and BBC News School Report. She led Authors Live, a partnership project with Scottish Book Trust, producing live TV events on iplayer featuring children’s authors. Angela recently spent 6 months as senior content producer on daytime programmes on BBC Radio Scotland, working on the morning's phone-in programmes and entertainment in the afternoons with presenters including Stephen Jardine and Michelle McManus.
Transcript
Angela: Hello, and welcome to It's The Law, with me, Angela Roberts, and solicitor, Omair Ahmed. Hi, Omair.
Omair. Hi, Angela.
Angela: So most of us have a vague idea about buying or renting a residential property to live in. But what if you aspire to set up your own business? Maybe it's been your dream to open a coffee shop or a gym, and you need somewhere to run it from.
Where do you start, and how do you pay for it? Today, we're going to talk about the steps involved in leasing or buying a commercial property, and how to safeguard against many of the pitfalls. And here to chat through all these commercial matters this time, I've got, as I said, solicitor, Omair Ahmed.
Omair, before we get into the various steps, I think you've done your fair share of buying and leasing property for clients over the years. What do you think are the main issues?
Omair: Probably commercial terms. What I mean by that is, if you've looked at a property, on what terms is that property going to be let to you or on what terms is that property going to be sold to you? A lot of times, clients would come to us to say, I've agreed terms for a lease, and I'll ask them, how long is the lease?
Do you have any break options? What are the rent review provisions? And I'll get a blank response.
So I think commercial terms is the main thing you would probably want to iron out first. You know, as much as you can before approaching a solicitor.
Angela: So people don't really know what they're getting into at all?
Yeah, I think, especially if you're inexperienced, it's a case of, oh, this property is lovely. This is going to be, I'm going to see my coffee shop in this property. But that's just part, one part of it.
You want to ensure, if you have a business plan that says that you have to be, you know, open for X number of years, then, you know, have you negotiated that is the landlord, is the landlord prepared to let you for that length of time? What investment are you putting into the property? Rent review as well, so you'll do your budgeting on the rent being X amount.
But when, if the rent is reviewed, and how is it reviewed? Does your finances still make sense? So all these kind of things, if you're inexperienced, you tend not to realise you have to think about them.
And part of-
Angela : Are you just looking at the nice location and the nice inside or whatever?
Omair: That's it. Yeah, you've got your fancy-
Angela: Like a show home.
Omair: Yeah, exactly. You'll have your drawings, you'll have a vision, you'll maybe have seen that coffee shop you've sat in before thinking that could work here. But that's just a small part of the kind of wider discussion you should be having when agreeing terms with the landlord.
Leasing Fundamentals
Angela: Okay, let's start then with leasing a property. And as you said, let's say I wanted to open a new coffee shop or a beauty salon, and I've seen somewhere that's got a sign up lease available too late, what is the first step then?
Omair: So the property will generally be advertised via a surveyor. I know some landlords tend to advertise it themselves, and it would just be contacting either the surveyor or the agent who is marketing the property, or the landlord if it's being marketed directly to view the property, and then have a discussion with the landlord about what they are looking for in a tenant, because some landlords may have a very rigid set of criteria that a tenant has to meet before they will let to you.
Angela: Right, what kind of things?
Omair: So if you're a new company, for example, so I would call it a new co, and you don't have any trading history, you don't have any trade references, and you can't satisfy the landlord in respect of your ability to pay the rental. They might not want you as a tenant. Other landlords will impose quite harsh restrictions on you.
They might look for personal guarantees. They might look for a large deposit. And if you have a budget of X amount, and then you're thinking, well, hold on, I need a six-month rent deposit for the landlord, or even a 12-month rent deposit, then all of a sudden the funds you had for you that out are now being paid to the landlord to the landlord to be held for generally the length of the lease.
So where do you find that?
Angela: Extra money?
Omair: Yeah, yeah, the shortfall. So these things, you would, when you speak with the landlord, you get to the bottom of this first before it's even viable.
Angela: Is that what Heads of Terms is then?
Yeah, that's right. So a Heads of Terms, it's not contractual in nature. It's almost like an understanding between a landlord and a tenant on what terms both parties have agreed to the let of the unit.
So it will have the description of the property. So the Heads would have the description of the property, the annual rental, rent review provisions, any break options on the landlord's side, any break options on the tenant's side, and what the permitted use for the premises is going to be. Is there going to be any rent free?
So, yeah, that would all be in the Heads of Terms
Angela: Is that a sort of physical document that you would be giving, or is it just like you would take some notes?
Omair: It is a physical document in that it's a PDF. You can print it, but it would be a PDF, generally on the landlords or whoever has brokered the deal. It will be on their letterhead or on their kind of style Heads, and it would just be broken down with all the different relevant information.
Angela: And at that point, would you go and see your solicitor about that then?
Omair: Yes. Yes and no. At that point, you may have already spoken to your solicitor.
We do get draft heads through, where the surveyor for the landlord has generally prepared a heads to say this is what we are prepared to offer, but they've not been finalised. And if the client has already engaged to services, we might get a draft heads to say...
Angela: So you can have a look through?
Yeah. Omair, what do you think? Have you missed anything?”
And then I might speak to them about sometimes it's the guarantee, sometimes it's the deposit, sometimes I'll ask whether, you know, do they need a break option, repair obligations. We would tend to advise them on that, yeah, at that stage.
Understanding Lease Agreements
Angela: And then comes the lease agreement.
Omair: So it's known as a, well, I refer to it as an FRI, but Full Repairing and Insuring lease. That's generally the lease that you would expect to see in Scotland. If the term is any longer than three or four years, we would generally have a full repairing and insuring lease.
And what that essentially means is, it's the tenant's responsibility to maintain, repair the premises. The landlord would also insure the premises for buildings, and the tenant would reimburse the landlord for those costs. It's extremely onerous.
Although it's not quite the same, I would, when I'm explaining it to someone who's asking me what an FRI lease is, or if someone that's inexperienced, I would say, just imagine you're the landlord, and you have to fix all the problems. And it's as simple as that. So you essentially step into the landlord's shoes in an FRI lease.
So if it's not covered by an insured event, if a pipe's burst and you need to get a plumber out, if the tiles have blown off the roof, and again, if it's not an insured event, then you would have to fix that. If you've got a smashed window due to vandalism or anything like that, then it's on you if insurance doesn't cover it to fix it. A lot of things might be covered by insurance, but a lot of the maintenance of a property wearing here wouldn't be covered, and it would fall on the tenant in that situation to cover those costs, which if you've...
Something I'll ask my clients is, do you rent your home? Because if they rent their home, I'll say it's the complete opposite.
Angela: Yeah, you would think your landlord was going to fix it.
Omair: Yes. Yes. And even now, even a year or two years later, they're in that lease, and you will get someone calling to say, oh, this has happened.
Does the landlord cover it? And I'll say, no, unfortunately not. Or we get new enquiries to say, entered into an FRI lease three years ago, this has happened and the landlord isn't fixing it.
And I'll look at the lease and I'll say, well, they don't have to fix it.
Angela: It's your responsibility.
Omair: That's right.
Angela: So missives and surveys are part of the process then, just like when you're buying a house.
Omair: That's right. That's right. So the missives are, is the contract essentially.
So in a commercial lease, it's slightly different than a residential purchase where the landlord's solicitor will tend to issue what's called an offer to lease. And that will say, have within it, it would include the lease, it would include the deposit agreement if there is a deposit, it would include the personal guarantee if there is a personal guarantee, and it would have within it on what terms the landlord is willing to grant this lease to the tenant on. So it may be, this is a lease, this is a guarantee, this is the rent deposit, and these are the perks, shall we say.
Maybe there is an incentive such as rent free, there may be landlord works, or a landlord's contribution to the fit out, to the tenant's fit out. Whatever you would...
Angela: Some benefit
Omair: from it, yeah.
Yeah, so that would all be encompassed within the offer to lease. And then obviously the lease itself is a big one, on what terms the landlord's leasing the property to you on.
Angela: So it's the opposite of a house, then, because you usually would put an offer in.
Omair: That's right. You buy a house, so it's the opposite of a house. It's generally the opposite, yes, that the landlord's solicitor er would issue an offer to lease rather than you offering to take on a lease.
Angela: To take on a lease. So what do I need to ensure before I actually sign a lease agreement?
Omair: Speak to a solicitor. Always take advice. I like to say, take advice on it.
You might not listen to my advice, but take that advice nonetheless. And most solicitors will pick up the phone and give you a bit of advice on the phone. And if you want to take it further, you can.
But always take advice on anything you're signing in life, especially something as onerous as a full repairing and insuring lease, because unfortunately, I had a few clients that have come out of it rather bruised.”
Angela: What sort of things?
Omair: So, if you've taken on a commercial lease and it's a 10-year term,
Angela: it seems long,
Omair: it's long. And if they've not negotiated a break option, and say, for example, you were running a coffee shop from that unit and the coffee shop wasn't successful, two years in, you've closed. The landlord would have to re-let the unit.
And if it takes them a year, two years, three years to re-let the unit, then you're liable for damages due to breach of contract. And not only are you not running the business from the unit, you're not deriving an income from that unit. So where are you going to find the money to pay the rent for an empty unit?
So you can imagine if the landlord sues you for damages or just rental, because the lease is still running. If the lease hasn't been brought to an end, then unless you're of very wealthy means, you can't find that money and you're going to struggle. You might become sequestrated.
You might lose your house. You might lose other assets that you have. The personal guarantee would be relied on by the landlord if they had to take any diligence against you as a result of your breach of contract.
The lease may also be in your personal name. Some landlords may not accept a new company as a tenant or an existing trading company as a tenant, in which case there might not be a personal guarantee, but you personally may just be the tenant. So instead of a guarantee, you're the tenant.
And I had one client who owned their own home, and every time he fell behind on rent, they would just start the procedure to sequestrate him, and they would get to court. The hearing would be there, and he'd have to beg, borrow, and steal from all his friends to pay back because he couldn't afford to lose his house. And then finally, he managed to get out of it by agreeing a renunciation with the landlord on paying them a capital sum.
So, yeah, it could be quite dangerous.
Angela: So your advice on that would have been not to sign a 10-year lease at the outset?
Omair: Yeah, I mean, you could, even if you were to sign a 10-year lease, you could ask for a break option at year five on-
Angela: So that's kind of a review point to see how things are fairing on both sides?
Omair: That's right. So if it's a new business, and you know generally it's going to take me two years to become established, so you might want a break option at year three. Generally, you need to give the landlord six months’ notice.
So if you have a four-year break, then at year three, if it's not working out, you can exercise the break and come out early. So it won't last a whole ten years. If it's a tenant-only break, you could look at if there's a personal guarantee, you could try to negotiate a cap on your liability.
So that's quite common these days. I certainly push that on just about every guarantee that I advise on. Cap it to one year's rental, cap it to two years' rental.
It's better than being unlimited, which is by default.
Angela: Okay. So what is a schedule of condition? I've heard that term mentioned when talking about leases.
Property Condition and Lease
Omair: So a schedule of condition is essentially a survey that's been carried out by a surveyor, and it evidences the condition of the property, of the leased premises rather, at the time that you took entry. And generally, you would expect a schedule of condition to be annexed to the lease, with the repair obligations within the lease restricted to the condition of the property as it's described in that schedule of condition. So a full repairing and insuring lease by default requires you to keep and maintain the premises in a good and substantial repair.
And it doesn't matter what condition you receive the property in. At the end of the five years or the 10 year term, you need to leave or return the premises to the landlord in a good and substantial repair and condition. And I had a call earlier on today with a client that had been hit with a £30,000 dilapidations bill, which was the landlord essentially saying, this is how much it's going to cost me to bring the property into the condition that you require to maintain it in the lease.
And I answered him, did you take advice at the time? And he said, no, I've improved the condition of the property. That's still not enough.
They've improved it, but still not the condition that it needs to be in, in terms of the lease.
Anegla: So would that have been the state it was in when they took it on, or is the landlord looking for more?
Landlord's looking for more in the call that I had this afternoon. Yeah, so even if you received the property in a derelict state, and your solicitor, or you never negotiated the schedule of condition, and it was not attached to the lease, then the lease is quite clear. FRI lease in Scotland would state that you have to leave it in a good and substantial repair.
During the term...
Angela: It seems very unfair.
And it is unfair, and that's what my client was saying to me this afternoon. It seems unfair, and my advice, the only advice I could say to him was, you should have picked up the phone and spoken to me, or any solicitor who would have advised you at that point, get a schedule of condition, and ensure that the lease is revised to limit your repair obligations to the condition that the property is in, at the time you got the keys.
Angela: At the end, he's been given a schedule of dilapidations.
Omair: That's right.
Angela: And that's where that's come up then.
Omair: That's right. That's right. So and landlords can make good money just at the expiry of every lease, getting in money for the dilapidations or having their property improved to better than it was 10 years ago when they let it out.
Angela: Wow.
Omair: So it's good business.
Angela: So during the lease, I take it, I've got to maintain it, and I can do renovations on it if I want.”
Omair: You can. Generally, if it's non-structural, generally, you would not require the landlord's consent, but it would depend on the terms of the lease. Some leases would say that you have to repaint and redecorate every three years or every five years.
Whether most tenants do that or not, I doubt, but certainly it's a term that you agreed to. We would tend to revise that upwards. So if we receive it at a lease which states that they have to redecorate or repaint every three years, we would tend to revise that to five years.
Sometimes they'll have a provision to say that in the last six months, you would have to repaint it or redecorate it, and we would tend to remove that from, or whether we remove it or whether we discuss that with the client depending on the type of lease it is and what the client is doing.
Angela: I suppose what kind of business it is, I guess.
Omair: That's right.
Angela: It's likely to have a lot of wear and tear
Omair: Well, if you're running a coffee shop, it needs to be nice, it needs to be presentable. So you'd be doing that anyway. You're not going..
Angela: To get people in.
Omair: Yeah. So, or if you're a fine dine restaurant, then you're going to make sure that the premises are in tip-top condition during the full term of the lease. But if it's a warehouse where you're storing goods and you don't have any clients who are public, you know, members of public, they're coming and going, and it's not going to affect you, or sometimes car garages, then you might not need to maintain everything to that condition.
Maybe you maintain the reception and everything else falls into neglect. So it really depends on what you're permitted to do. Yeah.
Angela: And we mentioned there, you know, 10 years and I have heard of 10 or 20 years, 20 year leases. It does seem to be a long time.
Omair: It is. I think it depends on what it is you're looking to do in the premises, how much money you're looking to spend, and how long you want security in that premise. If you have a convenience store, for example, and you have a premises license, and it's already and you're paying, perhaps you're paying goodwill, you're purchasing a business from the outgoing tenant, or you're purchasing the business from the landlord, and you're paying 50, 100, 150,000, the tenant in that case will want to ensure that they're in that property for as long as possible.
Angela: So they're benefiting.
Omair: they're benefiting, yeah. So you're not going to buy a business, buy the goodwill within that business for in the tens, or if not hundreds of thousands, and then only be secured in that property for five years. It doesn't make sense.
Angela: It's in your interest to have it a bit longer as well. Is that called assigning a lease then?
Lease Transfer and Renewal
Omair: So yes, it can be. So if it's the owner-occupier that's selling the business, the landlord will grant you a new lease, but in that case, yes, if it's a tenant that's trading from the premises, that lease would be assigned or essentially transferred to the buyer with the consent of the landlord. And then...”
Angela: And would you get involved in that kind of thing as well?
Omair: Yeah, you would need a solicitor at that point, yes. The solicitor would deal with the purchase of the goodwill, purchase of the stock, transfer of the premises license. Maybe there's a lottery, paypoint, you know, post office, bars, you know, these franchises.
The solicitor would be involved in the transfer of those suppliers. When the lease is being assigned, especially if it's a going concern, it's a profitable business and the parties are paying or the buyer is paying goodwill for it, at the assignation, you may also seek to extend the term. So if there's three years left or there's five years left, maybe the client or the tenant or the incoming tenant would want another ten years on top.
So they'll say, well, negotiate that because the landlord is involved for their consent. So you can ask the landlord at that point, I want to extend the term. And generally, a landlord feels safe or if the lease has longer left to run.
So if it's a private landlord or any type of landlord, really, they'll be more inclined to say, yeah, that's fine, I'll give you an extension. Because then they know that they don't have to worry about the lease expiring soon.
Angela: Is this a good point to mention tacit relocation, then? We're talking about expiring.
Omair: That's right. So tacit relocation is a term in Scotland. The expiry of a lease if neither landlord nor the tenant serves notice to the other of their intention to bring the lease to an end, at its natural expiry, it will extend automatically for another year.
So you need to serve the notice 40 days before the expiry of the term. And if you don't, the lease automatically extends for another year. I've had both sides.
I've had landlords come to me with two weeks left saying, oh, the lease is coming to an end, but the tenants not removed themselves, and they're not responding to me. What should I do? And the first question I ask is, did you notice that the lease was going to come to an end?
And they'll say no. And then generally it's, oh, well, you have to wait another year. Unless the lease states otherwise, you would have to wait another year for your opportunity to remove the tenant and vice versa.
The tenants might say, oh, I'm just leaving. The lease is coming up to an end of two weeks time. And then I'll say, did you notice on the landlord?
And they'll say no. And I'll say, unfortunately, you know, it's automatically extended for another year.
So that's 40 days.
Angela: Did you say 40 days?
Omair: Yes. So it's a 40 day notice to the party.
And the notice needs to be again, it can't be a text message or a WhatsApp to the landlord.
Angela: from a solicitor?
Omair: doesn't have to be a solicitor, but you need to comply with the terms of the lease.
The lease would generally have notice provisions. If it's a company, it would be generally to the registered office. That's to the landlord, to the tenant.
It might be at their last known address or at the leased premises address, but the lease will have within it where the notice has to be served, how it has to be served as a recorded delivery, as a chef officer. Lately, you can have via email. Fax used to be a thing. Not in my time, but certainly before. I've seen leases that had notice provisions by fax, but you need to ensure that the notice complies with the terms of the lease, because I've seen all sorts. An email to the client when the lease doesn't allow for email service, or WhatsApps are fantastic to communicate, but not to serve notice to end your lease.
Commercial Property Purchase
Angela: Let's move on to buying then, buying a commercial property. Is it common?
Omair: Buying is common. Buying is common. So we act for a number of landlords.
So any property that needs to be let is also capable of being sold. So we do act for sellers on commercial property, purchasers on commercial property. Landlords tend to like it more than the residential properties because, as we discussed earlier, they're hands-off.
They grant you the lease, they collect the rental, they maybe collect a service charge, they collect the insurance. And otherwise, they don't have to worry about repairing or maintaining the property. That's all down to the tenant.
Whereas with the residential properties, if you've got a tenant saying, I've got a burst pipe, or my washing machine's stopped working, or...
Angela :It's your responsibility to fix.
Omair: Yeah, so I tend to find landlords are gravitating more towards commercial property just because of the ease of managing them.
Angela: And is it like buying a house? Do you get a mortgage, or how do you pay for commercial property?
Omair: Yeah, if you have the ability to purchase the cash, you can buy it with cash, you can get secured funding, so you can go to your high street banks. All the big banks will lend on commercial property, and there's smaller banks as well out there that will lend to you as well. It's slightly different.
The purchase is slightly different in that in Scotland, on the residential property, we have a home report, and that's every property marketed for sale needs to have a home report, and that gives you a general idea of the valuation. Yes, the valuation and the condition of the property, whereas in a commercial purchase, there is no home report. So you would tend to negotiate the terms with the seller to say, well, I'll buy it from you for 400,000 or 300,000 or whatever the price may be.
And then if you're getting secured funding, you would go to the bank, and the bank would then instruct the survey for that property. And that's when the buyer will find out when the bank's survey comes back, and they've offered 400,000, and it comes in at 350,000, and then either they need to bridge the gap, or they need to go to the seller and try to renegotiate the deal because the valuation is coming under that they thought it would.
Angela: And once the deal is agreed, if I then wanted to rent it out and the shoe's on the other foot and I become the landlord, then that's just the same as the lease agreement that we talked about before.
Omair: That's right.
Angela: Just the same scenario.
Omair: Same scenario. Although with you being a landlord, you'd be hoping that the tenant doesn't take advice. You'd be hoping that you can get the best deal for you.
And it's always, I always find it quite funny when I'm advising what hat I'm wearing. Am I speaking to the tenant? Because my advice is going to be completely different than if I'm speaking to the landlord.
Because the goals are not really aligned.
Angela No.
Omair: So I'll try to get the tenant the best deal for them, try to get the landlord the best deal for them.
Angela: And does LBTT apply to a commercial property as well?
Omair: It applies to a commercial property and it applies to commercial leases as well.
Angela: Oh, does it?
Omair: Yes, it does. So it depends on the length of the lease. It depends on the annual rental.
And there's a nice calculator on the Revenue of Scotland's website where you can put in the start date, the end date and the annual rental and it will tell you what your LBTT liability is. And on the purchase, again, there is a LBTT liability depending on your purchase price. The more you pay for the purchase price, the higher the LBTT is going to be, yes.
Angela: And what if further down the line, I'm unhappy with the tenant, maybe they're not paying their rent on time, or I'm driving past and I'm thinking the place doesn't look as good as what I'd hoped. What can I do? Can I evict them or what's the process?
Omair: So depending on what the breach is, so if they're persistent in paying the rent late, but they are paying it, generally, the landlord tend to accept that. If they're in arrears, then it's a lot easier to evict a tenant under a commercial lease than it is for a residential. There's generally a 14-day notice period.
You set up a notice threatening irritancy, which means, and in that notice, you would set out what the breach is. So say, for example, you had rent arrears or you've not paid your insurance, there's a monetary breach. You'd either have 14 or 21 days that you would give to the tenant to remedy that breach.
So basically...
Angela: It's not long.
Omair: It's not long. Pay me. And if they don't pay, then you would send another notice, irritating release.
And then if the tenant does not remove themselves, you could evict them relatively straightforward.
Angela: How do you evict someone then? Is that a sheriff officer type thing?
Omair: Well, that's right. So you would have to go to the sheriff court, first of all, to get an order for that eviction. At the same time, you would want an order for payment for any arrears there are.
And then it would be a case of the sheriff officer serving, enforcing that decree or the decision of the court to regain possession of your property. And then you rent it to someone else. Yeah, you find another tenant and go.
So it's certainly a lot easier to evict under a commercial lease than it is for a residential.
Essential Commercial Advice
Angela: Is there anything that we haven't touched upon? Anything else you want to add before we do a wee bit of a summary?
Omair: Yeah, when negotiating this is on the commercial lease side, I've had a lot of clients just ensure that it's in the contract. So if you have negotiated a commercial lease and a lot of times, you know, they'll say, oh, the landlord's really friendly. He said just to put the rent at this for his bank, but he's only going to charge me this instead.
Or the landlord said, if he's going to sell, he's going to give me the right of first refusal.
But unless that's contract, they wouldn't be contractually bound unless that's agreed. So if it's some sort of rent incentive, then have that in a side letter or in a back letter. If it's in a right to buy, then have that in an option agreement to say, if he sells it, you have the right to purchase it or have that as a term within the lease.
To say, you have the right to purchase that property. If it's ever sold, the danger is the landlord that you're speaking to might not be the landlord when it comes time to enforce these provisions, right? So if the landlord, example, obviously, you've got no proof.
And the new landlord would not be bound by anything you've negotiated with the old landlord. So if they've sold their interest, if they've passed away and their son comes in and the son says, well, hold on a minute, you agreed that with my dad. You never agreed that with me.
Angela: Sounds like you've had experience of this.
Omair: 'I’ve come across that a few times, yes. So just ensure that if you have agreed it, if the landlord's going to be true to the word, they won't have an issue with agreeing to it within the contract rather than verbally.
Angela: So can we do a quick summary then of the key points? What would you, what are your kind of top tips? If going back to my scenario at the beginning that I've seen somewhere, I would like to open a coffee shop.
What are your top tips?
Omair: My top tip says take advice. If you're negotiating the Heads, the solicitors would not get involved with what we call the commercial terms. So that's, you know, what the rental for that unit is going to be. How long should the lease be for? Should you have a break option? We can give guidance.
The rent one's a big one because if you say to me, this is a unit I'm looking at and the landlord's wanting to rent at 30,000 per annum, that's not my job to know whether that's a market rental for that unit. You could instruct your own surveyor. So the landlord has a surveyor.
The tenant might also want their own surveyor to confirm that that's the correct rental. Yeah, that's reasonable. If you're more experienced, you might know already.
If you've let out other properties as a tenant, you might think that's reasonable. That's what I was paying at my last unit, and that's what they're charging now, and you can make a more informed decision. But whether it's via the solicitor for the advice that the solicitor needs to give, whether that's a surveyor for the advice that the surveyor needs to give, take advice.
If it's, say, for example, as a planning matter, if it's a class 1A, and you want to change it to class 3, take advice from the local authority. Are they likely to grant that change of use? And negotiate that as part of your deal in the heads that either the date of entry is subject to the change of use, or being granted by the local authority, or you have a break option if the change of use is not granted.
But always just take advice on start to finish, really. Before you sign anything, just make sure you've dotted all the i's and crossed all the t's.
Angela Do your homework.
Omair: Do your homework, yeah.
Angela: Okay, thanks very much. No problem at all.
Omair. Hi, Angela.
Angela: So most of us have a vague idea about buying or renting a residential property to live in. But what if you aspire to set up your own business? Maybe it's been your dream to open a coffee shop or a gym, and you need somewhere to run it from.
Where do you start, and how do you pay for it? Today, we're going to talk about the steps involved in leasing or buying a commercial property, and how to safeguard against many of the pitfalls. And here to chat through all these commercial matters this time, I've got, as I said, solicitor, Omair Ahmed.
Omair, before we get into the various steps, I think you've done your fair share of buying and leasing property for clients over the years. What do you think are the main issues?
Omair: Probably commercial terms. What I mean by that is, if you've looked at a property, on what terms is that property going to be let to you or on what terms is that property going to be sold to you? A lot of times, clients would come to us to say, I've agreed terms for a lease, and I'll ask them, how long is the lease?
Do you have any break options? What are the rent review provisions? And I'll get a blank response.
So I think commercial terms is the main thing you would probably want to iron out first. You know, as much as you can before approaching a solicitor.
Angela: So people don't really know what they're getting into at all?
Yeah, I think, especially if you're inexperienced, it's a case of, oh, this property is lovely. This is going to be, I'm going to see my coffee shop in this property. But that's just part, one part of it.
You want to ensure, if you have a business plan that says that you have to be, you know, open for X number of years, then, you know, have you negotiated that is the landlord, is the landlord prepared to let you for that length of time? What investment are you putting into the property? Rent review as well, so you'll do your budgeting on the rent being X amount.
But when, if the rent is reviewed, and how is it reviewed? Does your finances still make sense? So all these kind of things, if you're inexperienced, you tend not to realise you have to think about them.
And part of-
Angela : Are you just looking at the nice location and the nice inside or whatever?
Omair: That's it. Yeah, you've got your fancy-
Angela: Like a show home.
Omair: Yeah, exactly. You'll have your drawings, you'll have a vision, you'll maybe have seen that coffee shop you've sat in before thinking that could work here. But that's just a small part of the kind of wider discussion you should be having when agreeing terms with the landlord.
Leasing Fundamentals
Angela: Okay, let's start then with leasing a property. And as you said, let's say I wanted to open a new coffee shop or a beauty salon, and I've seen somewhere that's got a sign up lease available too late, what is the first step then?
Omair: So the property will generally be advertised via a surveyor. I know some landlords tend to advertise it themselves, and it would just be contacting either the surveyor or the agent who is marketing the property, or the landlord if it's being marketed directly to view the property, and then have a discussion with the landlord about what they are looking for in a tenant, because some landlords may have a very rigid set of criteria that a tenant has to meet before they will let to you.
Angela: Right, what kind of things?
Omair: So if you're a new company, for example, so I would call it a new co, and you don't have any trading history, you don't have any trade references, and you can't satisfy the landlord in respect of your ability to pay the rental. They might not want you as a tenant. Other landlords will impose quite harsh restrictions on you.
They might look for personal guarantees. They might look for a large deposit. And if you have a budget of X amount, and then you're thinking, well, hold on, I need a six-month rent deposit for the landlord, or even a 12-month rent deposit, then all of a sudden the funds you had for you that out are now being paid to the landlord to the landlord to be held for generally the length of the lease.
So where do you find that?
Angela: Extra money?
Omair: Yeah, yeah, the shortfall. So these things, you would, when you speak with the landlord, you get to the bottom of this first before it's even viable.
Angela: Is that what Heads of Terms is then?
Yeah, that's right. So a Heads of Terms, it's not contractual in nature. It's almost like an understanding between a landlord and a tenant on what terms both parties have agreed to the let of the unit.
So it will have the description of the property. So the Heads would have the description of the property, the annual rental, rent review provisions, any break options on the landlord's side, any break options on the tenant's side, and what the permitted use for the premises is going to be. Is there going to be any rent free?
So, yeah, that would all be in the Heads of Terms
Angela: Is that a sort of physical document that you would be giving, or is it just like you would take some notes?
Omair: It is a physical document in that it's a PDF. You can print it, but it would be a PDF, generally on the landlords or whoever has brokered the deal. It will be on their letterhead or on their kind of style Heads, and it would just be broken down with all the different relevant information.
Angela: And at that point, would you go and see your solicitor about that then?
Omair: Yes. Yes and no. At that point, you may have already spoken to your solicitor.
We do get draft heads through, where the surveyor for the landlord has generally prepared a heads to say this is what we are prepared to offer, but they've not been finalised. And if the client has already engaged to services, we might get a draft heads to say...
Angela: So you can have a look through?
Yeah. Omair, what do you think? Have you missed anything?”
And then I might speak to them about sometimes it's the guarantee, sometimes it's the deposit, sometimes I'll ask whether, you know, do they need a break option, repair obligations. We would tend to advise them on that, yeah, at that stage.
Understanding Lease Agreements
Angela: And then comes the lease agreement.
Omair: So it's known as a, well, I refer to it as an FRI, but Full Repairing and Insuring lease. That's generally the lease that you would expect to see in Scotland. If the term is any longer than three or four years, we would generally have a full repairing and insuring lease.
And what that essentially means is, it's the tenant's responsibility to maintain, repair the premises. The landlord would also insure the premises for buildings, and the tenant would reimburse the landlord for those costs. It's extremely onerous.
Although it's not quite the same, I would, when I'm explaining it to someone who's asking me what an FRI lease is, or if someone that's inexperienced, I would say, just imagine you're the landlord, and you have to fix all the problems. And it's as simple as that. So you essentially step into the landlord's shoes in an FRI lease.
So if it's not covered by an insured event, if a pipe's burst and you need to get a plumber out, if the tiles have blown off the roof, and again, if it's not an insured event, then you would have to fix that. If you've got a smashed window due to vandalism or anything like that, then it's on you if insurance doesn't cover it to fix it. A lot of things might be covered by insurance, but a lot of the maintenance of a property wearing here wouldn't be covered, and it would fall on the tenant in that situation to cover those costs, which if you've...
Something I'll ask my clients is, do you rent your home? Because if they rent their home, I'll say it's the complete opposite.
Angela: Yeah, you would think your landlord was going to fix it.
Omair: Yes. Yes. And even now, even a year or two years later, they're in that lease, and you will get someone calling to say, oh, this has happened.
Does the landlord cover it? And I'll say, no, unfortunately not. Or we get new enquiries to say, entered into an FRI lease three years ago, this has happened and the landlord isn't fixing it.
And I'll look at the lease and I'll say, well, they don't have to fix it.
Angela: It's your responsibility.
Omair: That's right.
Angela: So missives and surveys are part of the process then, just like when you're buying a house.
Omair: That's right. That's right. So the missives are, is the contract essentially.
So in a commercial lease, it's slightly different than a residential purchase where the landlord's solicitor will tend to issue what's called an offer to lease. And that will say, have within it, it would include the lease, it would include the deposit agreement if there is a deposit, it would include the personal guarantee if there is a personal guarantee, and it would have within it on what terms the landlord is willing to grant this lease to the tenant on. So it may be, this is a lease, this is a guarantee, this is the rent deposit, and these are the perks, shall we say.
Maybe there is an incentive such as rent free, there may be landlord works, or a landlord's contribution to the fit out, to the tenant's fit out. Whatever you would...
Angela: Some benefit
Omair: from it, yeah.
Yeah, so that would all be encompassed within the offer to lease. And then obviously the lease itself is a big one, on what terms the landlord's leasing the property to you on.
Angela: So it's the opposite of a house, then, because you usually would put an offer in.
Omair: That's right. You buy a house, so it's the opposite of a house. It's generally the opposite, yes, that the landlord's solicitor er would issue an offer to lease rather than you offering to take on a lease.
Angela: To take on a lease. So what do I need to ensure before I actually sign a lease agreement?
Omair: Speak to a solicitor. Always take advice. I like to say, take advice on it.
You might not listen to my advice, but take that advice nonetheless. And most solicitors will pick up the phone and give you a bit of advice on the phone. And if you want to take it further, you can.
But always take advice on anything you're signing in life, especially something as onerous as a full repairing and insuring lease, because unfortunately, I had a few clients that have come out of it rather bruised.”
Angela: What sort of things?
Omair: So, if you've taken on a commercial lease and it's a 10-year term,
Angela: it seems long,
Omair: it's long. And if they've not negotiated a break option, and say, for example, you were running a coffee shop from that unit and the coffee shop wasn't successful, two years in, you've closed. The landlord would have to re-let the unit.
And if it takes them a year, two years, three years to re-let the unit, then you're liable for damages due to breach of contract. And not only are you not running the business from the unit, you're not deriving an income from that unit. So where are you going to find the money to pay the rent for an empty unit?
So you can imagine if the landlord sues you for damages or just rental, because the lease is still running. If the lease hasn't been brought to an end, then unless you're of very wealthy means, you can't find that money and you're going to struggle. You might become sequestrated.
You might lose your house. You might lose other assets that you have. The personal guarantee would be relied on by the landlord if they had to take any diligence against you as a result of your breach of contract.
The lease may also be in your personal name. Some landlords may not accept a new company as a tenant or an existing trading company as a tenant, in which case there might not be a personal guarantee, but you personally may just be the tenant. So instead of a guarantee, you're the tenant.
And I had one client who owned their own home, and every time he fell behind on rent, they would just start the procedure to sequestrate him, and they would get to court. The hearing would be there, and he'd have to beg, borrow, and steal from all his friends to pay back because he couldn't afford to lose his house. And then finally, he managed to get out of it by agreeing a renunciation with the landlord on paying them a capital sum.
So, yeah, it could be quite dangerous.
Angela: So your advice on that would have been not to sign a 10-year lease at the outset?
Omair: Yeah, I mean, you could, even if you were to sign a 10-year lease, you could ask for a break option at year five on-
Angela: So that's kind of a review point to see how things are fairing on both sides?
Omair: That's right. So if it's a new business, and you know generally it's going to take me two years to become established, so you might want a break option at year three. Generally, you need to give the landlord six months’ notice.
So if you have a four-year break, then at year three, if it's not working out, you can exercise the break and come out early. So it won't last a whole ten years. If it's a tenant-only break, you could look at if there's a personal guarantee, you could try to negotiate a cap on your liability.
So that's quite common these days. I certainly push that on just about every guarantee that I advise on. Cap it to one year's rental, cap it to two years' rental.
It's better than being unlimited, which is by default.
Angela: Okay. So what is a schedule of condition? I've heard that term mentioned when talking about leases.
Property Condition and Lease
Omair: So a schedule of condition is essentially a survey that's been carried out by a surveyor, and it evidences the condition of the property, of the leased premises rather, at the time that you took entry. And generally, you would expect a schedule of condition to be annexed to the lease, with the repair obligations within the lease restricted to the condition of the property as it's described in that schedule of condition. So a full repairing and insuring lease by default requires you to keep and maintain the premises in a good and substantial repair.
And it doesn't matter what condition you receive the property in. At the end of the five years or the 10 year term, you need to leave or return the premises to the landlord in a good and substantial repair and condition. And I had a call earlier on today with a client that had been hit with a £30,000 dilapidations bill, which was the landlord essentially saying, this is how much it's going to cost me to bring the property into the condition that you require to maintain it in the lease.
And I answered him, did you take advice at the time? And he said, no, I've improved the condition of the property. That's still not enough.
They've improved it, but still not the condition that it needs to be in, in terms of the lease.
Anegla: So would that have been the state it was in when they took it on, or is the landlord looking for more?
Landlord's looking for more in the call that I had this afternoon. Yeah, so even if you received the property in a derelict state, and your solicitor, or you never negotiated the schedule of condition, and it was not attached to the lease, then the lease is quite clear. FRI lease in Scotland would state that you have to leave it in a good and substantial repair.
During the term...
Angela: It seems very unfair.
And it is unfair, and that's what my client was saying to me this afternoon. It seems unfair, and my advice, the only advice I could say to him was, you should have picked up the phone and spoken to me, or any solicitor who would have advised you at that point, get a schedule of condition, and ensure that the lease is revised to limit your repair obligations to the condition that the property is in, at the time you got the keys.
Angela: At the end, he's been given a schedule of dilapidations.
Omair: That's right.
Angela: And that's where that's come up then.
Omair: That's right. That's right. So and landlords can make good money just at the expiry of every lease, getting in money for the dilapidations or having their property improved to better than it was 10 years ago when they let it out.
Angela: Wow.
Omair: So it's good business.
Angela: So during the lease, I take it, I've got to maintain it, and I can do renovations on it if I want.”
Omair: You can. Generally, if it's non-structural, generally, you would not require the landlord's consent, but it would depend on the terms of the lease. Some leases would say that you have to repaint and redecorate every three years or every five years.
Whether most tenants do that or not, I doubt, but certainly it's a term that you agreed to. We would tend to revise that upwards. So if we receive it at a lease which states that they have to redecorate or repaint every three years, we would tend to revise that to five years.
Sometimes they'll have a provision to say that in the last six months, you would have to repaint it or redecorate it, and we would tend to remove that from, or whether we remove it or whether we discuss that with the client depending on the type of lease it is and what the client is doing.
Angela: I suppose what kind of business it is, I guess.
Omair: That's right.
Angela: It's likely to have a lot of wear and tear
Omair: Well, if you're running a coffee shop, it needs to be nice, it needs to be presentable. So you'd be doing that anyway. You're not going..
Angela: To get people in.
Omair: Yeah. So, or if you're a fine dine restaurant, then you're going to make sure that the premises are in tip-top condition during the full term of the lease. But if it's a warehouse where you're storing goods and you don't have any clients who are public, you know, members of public, they're coming and going, and it's not going to affect you, or sometimes car garages, then you might not need to maintain everything to that condition.
Maybe you maintain the reception and everything else falls into neglect. So it really depends on what you're permitted to do. Yeah.
Angela: And we mentioned there, you know, 10 years and I have heard of 10 or 20 years, 20 year leases. It does seem to be a long time.
Omair: It is. I think it depends on what it is you're looking to do in the premises, how much money you're looking to spend, and how long you want security in that premise. If you have a convenience store, for example, and you have a premises license, and it's already and you're paying, perhaps you're paying goodwill, you're purchasing a business from the outgoing tenant, or you're purchasing the business from the landlord, and you're paying 50, 100, 150,000, the tenant in that case will want to ensure that they're in that property for as long as possible.
Angela: So they're benefiting.
Omair: they're benefiting, yeah. So you're not going to buy a business, buy the goodwill within that business for in the tens, or if not hundreds of thousands, and then only be secured in that property for five years. It doesn't make sense.
Angela: It's in your interest to have it a bit longer as well. Is that called assigning a lease then?
Lease Transfer and Renewal
Omair: So yes, it can be. So if it's the owner-occupier that's selling the business, the landlord will grant you a new lease, but in that case, yes, if it's a tenant that's trading from the premises, that lease would be assigned or essentially transferred to the buyer with the consent of the landlord. And then...”
Angela: And would you get involved in that kind of thing as well?
Omair: Yeah, you would need a solicitor at that point, yes. The solicitor would deal with the purchase of the goodwill, purchase of the stock, transfer of the premises license. Maybe there's a lottery, paypoint, you know, post office, bars, you know, these franchises.
The solicitor would be involved in the transfer of those suppliers. When the lease is being assigned, especially if it's a going concern, it's a profitable business and the parties are paying or the buyer is paying goodwill for it, at the assignation, you may also seek to extend the term. So if there's three years left or there's five years left, maybe the client or the tenant or the incoming tenant would want another ten years on top.
So they'll say, well, negotiate that because the landlord is involved for their consent. So you can ask the landlord at that point, I want to extend the term. And generally, a landlord feels safe or if the lease has longer left to run.
So if it's a private landlord or any type of landlord, really, they'll be more inclined to say, yeah, that's fine, I'll give you an extension. Because then they know that they don't have to worry about the lease expiring soon.
Angela: Is this a good point to mention tacit relocation, then? We're talking about expiring.
Omair: That's right. So tacit relocation is a term in Scotland. The expiry of a lease if neither landlord nor the tenant serves notice to the other of their intention to bring the lease to an end, at its natural expiry, it will extend automatically for another year.
So you need to serve the notice 40 days before the expiry of the term. And if you don't, the lease automatically extends for another year. I've had both sides.
I've had landlords come to me with two weeks left saying, oh, the lease is coming to an end, but the tenants not removed themselves, and they're not responding to me. What should I do? And the first question I ask is, did you notice that the lease was going to come to an end?
And they'll say no. And then generally it's, oh, well, you have to wait another year. Unless the lease states otherwise, you would have to wait another year for your opportunity to remove the tenant and vice versa.
The tenants might say, oh, I'm just leaving. The lease is coming up to an end of two weeks time. And then I'll say, did you notice on the landlord?
And they'll say no. And I'll say, unfortunately, you know, it's automatically extended for another year.
So that's 40 days.
Angela: Did you say 40 days?
Omair: Yes. So it's a 40 day notice to the party.
And the notice needs to be again, it can't be a text message or a WhatsApp to the landlord.
Angela: from a solicitor?
Omair: doesn't have to be a solicitor, but you need to comply with the terms of the lease.
The lease would generally have notice provisions. If it's a company, it would be generally to the registered office. That's to the landlord, to the tenant.
It might be at their last known address or at the leased premises address, but the lease will have within it where the notice has to be served, how it has to be served as a recorded delivery, as a chef officer. Lately, you can have via email. Fax used to be a thing. Not in my time, but certainly before. I've seen leases that had notice provisions by fax, but you need to ensure that the notice complies with the terms of the lease, because I've seen all sorts. An email to the client when the lease doesn't allow for email service, or WhatsApps are fantastic to communicate, but not to serve notice to end your lease.
Commercial Property Purchase
Angela: Let's move on to buying then, buying a commercial property. Is it common?
Omair: Buying is common. Buying is common. So we act for a number of landlords.
So any property that needs to be let is also capable of being sold. So we do act for sellers on commercial property, purchasers on commercial property. Landlords tend to like it more than the residential properties because, as we discussed earlier, they're hands-off.
They grant you the lease, they collect the rental, they maybe collect a service charge, they collect the insurance. And otherwise, they don't have to worry about repairing or maintaining the property. That's all down to the tenant.
Whereas with the residential properties, if you've got a tenant saying, I've got a burst pipe, or my washing machine's stopped working, or...
Angela :It's your responsibility to fix.
Omair: Yeah, so I tend to find landlords are gravitating more towards commercial property just because of the ease of managing them.
Angela: And is it like buying a house? Do you get a mortgage, or how do you pay for commercial property?
Omair: Yeah, if you have the ability to purchase the cash, you can buy it with cash, you can get secured funding, so you can go to your high street banks. All the big banks will lend on commercial property, and there's smaller banks as well out there that will lend to you as well. It's slightly different.
The purchase is slightly different in that in Scotland, on the residential property, we have a home report, and that's every property marketed for sale needs to have a home report, and that gives you a general idea of the valuation. Yes, the valuation and the condition of the property, whereas in a commercial purchase, there is no home report. So you would tend to negotiate the terms with the seller to say, well, I'll buy it from you for 400,000 or 300,000 or whatever the price may be.
And then if you're getting secured funding, you would go to the bank, and the bank would then instruct the survey for that property. And that's when the buyer will find out when the bank's survey comes back, and they've offered 400,000, and it comes in at 350,000, and then either they need to bridge the gap, or they need to go to the seller and try to renegotiate the deal because the valuation is coming under that they thought it would.
Angela: And once the deal is agreed, if I then wanted to rent it out and the shoe's on the other foot and I become the landlord, then that's just the same as the lease agreement that we talked about before.
Omair: That's right.
Angela: Just the same scenario.
Omair: Same scenario. Although with you being a landlord, you'd be hoping that the tenant doesn't take advice. You'd be hoping that you can get the best deal for you.
And it's always, I always find it quite funny when I'm advising what hat I'm wearing. Am I speaking to the tenant? Because my advice is going to be completely different than if I'm speaking to the landlord.
Because the goals are not really aligned.
Angela No.
Omair: So I'll try to get the tenant the best deal for them, try to get the landlord the best deal for them.
Angela: And does LBTT apply to a commercial property as well?
Omair: It applies to a commercial property and it applies to commercial leases as well.
Angela: Oh, does it?
Omair: Yes, it does. So it depends on the length of the lease. It depends on the annual rental.
And there's a nice calculator on the Revenue of Scotland's website where you can put in the start date, the end date and the annual rental and it will tell you what your LBTT liability is. And on the purchase, again, there is a LBTT liability depending on your purchase price. The more you pay for the purchase price, the higher the LBTT is going to be, yes.
Angela: And what if further down the line, I'm unhappy with the tenant, maybe they're not paying their rent on time, or I'm driving past and I'm thinking the place doesn't look as good as what I'd hoped. What can I do? Can I evict them or what's the process?
Omair: So depending on what the breach is, so if they're persistent in paying the rent late, but they are paying it, generally, the landlord tend to accept that. If they're in arrears, then it's a lot easier to evict a tenant under a commercial lease than it is for a residential. There's generally a 14-day notice period.
You set up a notice threatening irritancy, which means, and in that notice, you would set out what the breach is. So say, for example, you had rent arrears or you've not paid your insurance, there's a monetary breach. You'd either have 14 or 21 days that you would give to the tenant to remedy that breach.
So basically...
Angela: It's not long.
Omair: It's not long. Pay me. And if they don't pay, then you would send another notice, irritating release.
And then if the tenant does not remove themselves, you could evict them relatively straightforward.
Angela: How do you evict someone then? Is that a sheriff officer type thing?
Omair: Well, that's right. So you would have to go to the sheriff court, first of all, to get an order for that eviction. At the same time, you would want an order for payment for any arrears there are.
And then it would be a case of the sheriff officer serving, enforcing that decree or the decision of the court to regain possession of your property. And then you rent it to someone else. Yeah, you find another tenant and go.
So it's certainly a lot easier to evict under a commercial lease than it is for a residential.
Essential Commercial Advice
Angela: Is there anything that we haven't touched upon? Anything else you want to add before we do a wee bit of a summary?
Omair: Yeah, when negotiating this is on the commercial lease side, I've had a lot of clients just ensure that it's in the contract. So if you have negotiated a commercial lease and a lot of times, you know, they'll say, oh, the landlord's really friendly. He said just to put the rent at this for his bank, but he's only going to charge me this instead.
Or the landlord said, if he's going to sell, he's going to give me the right of first refusal.
But unless that's contract, they wouldn't be contractually bound unless that's agreed. So if it's some sort of rent incentive, then have that in a side letter or in a back letter. If it's in a right to buy, then have that in an option agreement to say, if he sells it, you have the right to purchase it or have that as a term within the lease.
To say, you have the right to purchase that property. If it's ever sold, the danger is the landlord that you're speaking to might not be the landlord when it comes time to enforce these provisions, right? So if the landlord, example, obviously, you've got no proof.
And the new landlord would not be bound by anything you've negotiated with the old landlord. So if they've sold their interest, if they've passed away and their son comes in and the son says, well, hold on a minute, you agreed that with my dad. You never agreed that with me.
Angela: Sounds like you've had experience of this.
Omair: 'I’ve come across that a few times, yes. So just ensure that if you have agreed it, if the landlord's going to be true to the word, they won't have an issue with agreeing to it within the contract rather than verbally.
Angela: So can we do a quick summary then of the key points? What would you, what are your kind of top tips? If going back to my scenario at the beginning that I've seen somewhere, I would like to open a coffee shop.
What are your top tips?
Omair: My top tip says take advice. If you're negotiating the Heads, the solicitors would not get involved with what we call the commercial terms. So that's, you know, what the rental for that unit is going to be. How long should the lease be for? Should you have a break option? We can give guidance.
The rent one's a big one because if you say to me, this is a unit I'm looking at and the landlord's wanting to rent at 30,000 per annum, that's not my job to know whether that's a market rental for that unit. You could instruct your own surveyor. So the landlord has a surveyor.
The tenant might also want their own surveyor to confirm that that's the correct rental. Yeah, that's reasonable. If you're more experienced, you might know already.
If you've let out other properties as a tenant, you might think that's reasonable. That's what I was paying at my last unit, and that's what they're charging now, and you can make a more informed decision. But whether it's via the solicitor for the advice that the solicitor needs to give, whether that's a surveyor for the advice that the surveyor needs to give, take advice.
If it's, say, for example, as a planning matter, if it's a class 1A, and you want to change it to class 3, take advice from the local authority. Are they likely to grant that change of use? And negotiate that as part of your deal in the heads that either the date of entry is subject to the change of use, or being granted by the local authority, or you have a break option if the change of use is not granted.
But always just take advice on start to finish, really. Before you sign anything, just make sure you've dotted all the i's and crossed all the t's.
Angela Do your homework.
Omair: Do your homework, yeah.
Angela: Okay, thanks very much. No problem at all.
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