When starting or growing a business that requires an operational property, such as a retail shop, the general assumption is you can either buy a freehold or take a traditional lease. As buying a freehold is prohibitive due to the need for a hefty deposit and limited stock, most businesses revert to taking a traditional lease as this gives them access to a much larger marketplace of potential properties and doesn't tie up their capital.

However, what many new businesses fail to realise, is that there are several further options within the commercial leasing world which may be more appropriate when assessing the short term needs and risk profile of the business. Let's explore some of these alternatives:

-          Tenancy at Will (TAW) - This is a short term and very flexible agreement, often just a few pages long. It provides both the landlord and the tenant the option to terminate the agreement at any time, giving just a day's notice. This is mostly used for properties that are coming to the end of their useful life and perhaps the landlord is keeping his options open whilst firming up his plans for redevelopment. To keep things simple, rent is usually an all-inclusive charge, covering all occupational costs such as rates and utilities.

-          Licence - This is more formal than a TAW but not as restrictive and long term as a traditional lease. The term is usually for a period of a few months with no renewal rights at the end of the term. Landlords are careful not to grant anything longer than 12 months as this could inadvertently grant renewal rights for the tenant.

Terms are often kept quite brief and are mostly non-negotiable.  The main terms that can be changed and agreed from the standard document are length of term, rent and break clauses.

Typical examples of licences are car parking spaces and serviced office suites or desks. It is important to note that licences do not grant exclusive possession over that property, so in theory, the landlord could move you to another part of the property at any point.

-          ‘Pop Up' - This is often in the form of a TAW or Licence and can be for as little as a day or a week. Both small and larger businesses utilise this strategy in order to ‘market test' a concept or location before committing to a longer term lease, either at the same property or similar location. It usually requires very little capital spend and an is ‘easy in/easy out' process. Retailers also favour this approach in the 2-3 months leading up to Christmas in order to take advantage of the busy period and to ‘test the waters' before committing to a longer term lease in that location

-          Traditional long-term lease - A long term commercial lease is covered by a piece of legislation called the Landlord and Tenant Act 1954. This gives the tenant a degree of protection and most importantly, the right to a new lease at the end of the term. Be warned however that the landlord can object to granting a new lease on certain grounds, especially if you have not behaved yourself.

Traditional leases can be anything from a couple of years up to 25 years plus, however, the average lease length these days is between 5-10 years. You should consider the risk profile of your business and try and balance long term security with short term flexibility in order to give yourself the best chance of success.

As we can see, there are several options available when looking to utilise a commercial property. The correct approach will depend on the type of business, initial capital spend, the ability to easily relocate and not to mention the expectations of the landlord in question.

For more information visit  :  windsor-grange.com or call on Tel 0203 151 9717