Commercial Property Guide to Industrial Leasing

You already know the different types of industrial space available in the UK. There are still many other factors to consider before moving into your first industrial property, though. Especially as the market continues to evolve. This guide is meant to help prospective tenants lease their first industrial property:

Many industrial properties are located on the outskirts of towns or cities, near a skilled workforce and major transport routes. Try to understand the conditions of the local market by researching the average price of rent and vacancy rates.

You might want to focus your attention on areas with extra support. For instance, Local Enterprise Partnerships (LEPs), which are partnerships between local authorities and businesses that determine what the economic priorities are in the area. 17 of the 39 LEPS have named the logistics and transport sector as a focus for the local region.

You could also look into Enterprise Zones, which are areas where Government incentives are offered to businesses to help them start up or expand. They include simplified planning processes and tax concessions, and some businesses in such zones have even been eligible for 100 percent capital allowances for expenditure on plant and machinery.

Before searching for an industrial unit to let, you should consider the following:

Size of the space. One of the biggest questions you need to ask yourself is how much space you need. Consider the ratio of office to industrial space you need.

Length of the agreement. You’ll also need to decide how long you want to lease the property. As your business changes or grows, there’s a chance that you’ll need to change your building. Industrial properties with longer leases tend to have lower rent, but you will of course have to commit to it for a more extended period.

The type of space. The type of space should also be a key part of your considerations. High-rise buildings are a great choice for businesses that are intending on installing racking because you only pay for the area used. Consider the machinery you will be using as this will impact the type of industrial space you can lease. For instance, if you are going to use heavy machinery, you might need extra floor space for loading or extra power capacity. Be sure to factor in the individual requirements of your business, such as needing high security, the use of cranes, special planning, and what access you need.

Timescale. The final thing to consider is your timescales. While some industrial properties are available to move into straight away, others will need some work done to meet your specification. To make sure you don’t end up in a weak negotiating position, allow ample time for sorting out legal documents.

1. How long does the lease last?
2. What is the rent, and can it increase?
3. What is the total monthly cost? This includes rent, rates, service/maintenance charges, insurance, deposit, etc.
4. Will I be responsible for any repairs and maintenance?
5. Is there a service or maintenance charge? If yes, what does it include?
6. What utility supplies are already there?
7. Is the lease inside or outside the Landlord & Tenant Act?
8. Does the space I’m leasing include parking or yard areas?
9. How soon can I move in?
10. Are there any access/usage restrictions?

As well as the rent price, there are several other costs for you to consider:

• Rent deposits. Landlords generally ask for three to six months of rent as a deposit, on top of the first month/quarter’s rent at the start of the lease.
• Business rates. The Government charges business rates on commercial properties. This is usually 50% of the rent.
• Service or maintenance charge. When properties share common parts, for instance, security or service yards, the landlord may charge a fee to contribute to the upkeep. Find out if this is fixed or variable.
• VAT. Landlords tend to charge VAT on goods and services. This includes rent and service charges.
• Repairs and maintenance. Check the lease agreement for whether you are liable for internal or external repairs. Make sure you know what you’re liable for before you sign the agreement.
• Insurance. Typically, the landlord will insure the building for you and then charge you for it. But you’ll need to remember to sort out your public liability insurance.
• Waste and Utilities. You’re probably going to have to find your suppliers unless the landlord tells you otherwise.
• End of Lease. When the lease has ended you need to return the industrial unit in good condition.
• Capital allowances. This practice allows you to get tax relief on expenditures like lighting, heating, security, carpets, etc.
• Fees. Consider legal fees and the cost of hiring a building surveyor and an engineer. Factor these quotes into your budget.

This is a great chance to ask the questions we mentioned earlier and get a better idea of what the landlord will be like when you’re their tenant. Ask them for a proposal, and make sure it includes all of the costs mentioned earlier. It’s wise to speak to other tenants of the property to see what their experience with the landlord and property is like. Next up, negotiate the best possible deal. Areas you might want to discuss include dilapidations, any flexibility with lease breaks or renewal, and market rent reviews. Once you’ve decided on an industrial unit, there are eight key stages of the leasing process.

This is just a rough guide and these steps might not always happen in this exact order.

1. Agree on Heads of Terms (HOTs). These need to include every detail of the lease and everything you have agreed on. Verbal promises aren’t normally binding, to make sure everything is recorded in the HOTs. This is particularly important if the landlord changes in the future.
2. Instruct a solicitor to help you. If it’s a complex agreement, this might be a sensible decision. Once it’s signed there’s no going back.
3. Carry out due diligence. Commission a survey to reveal the industrial unit’s condition and any potential problems. Attach a copy of the Schedule of Condition (SOC) (the record of the property’s condition) to the lease in case there is any disagreement when the lease expires.
4. Complete your ‘Know Your Customer’ checks. Get information that confirms your identity ready, this includes your passport, company financials or a utility bill.
5. Set up a Direct Debit or standing order. Few landlords will accept cash so make sure to set one of these up.
6. Transfer the funds. You will need to transfer the landlord any advance rent or deposits before the lease completes.
7. Sign the documents. You’ll have to sign the lease, and any other related documents (plans, licences for alterations, schedules of conditions) before you can move in.
8. Get the keys. Once you’ve completed all of the 7 steps you will receive confirmation that the lease is good to go.

This article was originally published on Realla on 6 November 2019.