Legal Corner I
by Owen Hill, Consultant Solicitor of Wollen Michelmore Solicitors
WHAT SECURITY FOR TENANTS BUILDING A BUSINESS?
t is common practice for businesses to operate from premises that are leased rather than owned outright. The usual justification for this is that businesses are best served by putting all available capital into the enterprise rather than property. This was recognised way back in 1954 when the concept of security of tenure was enshrined in legislation. This was designed to strike a balance between the owners of property on the high street and the businesses operating from the shops and offices.
The default position is that if you hold a lease for a business property then you have a statutory right to ask for a new lease on similar terms when your current lease expires. There are some obvious
Wollen Michelmore SOL I C I TOR S
The South Devon Law Firm
exceptions. For example - if the landlord wants to redevelop or you have been a bad tenant then you will lose the right to a new lease. This all seems fair enough.
In the old days – business property was commonly let on leases that ran for 25 years with regular rent reviews and everyone was happy, but the modern world is a fast changing one and leases tend to be much shorter. After some high profile cases and some further legislation, tenants are aware that a long lease is potentially a long liability and that most leases do not allow an escape or release on assignment to another. The trouble is that as tenants demand shorter leases, landlords have fought back by asserting that tenants must give up the statutory right to renew the lease when it expires. This can have very serious implications for the tenant.
The experience, dedication and values to support you, your family and your business
That you are where you are is part of the goodwill value that you create when you build a business. What about the end game? When you retire or decide to sell up, how do you think your buyer will regard a business with little time left on a lease and no right to call for a new one? The buyer will probably realise that the landlord will be in a strong position when negotiating a rent for any new lease because if a new deal is not done then the buyer of the business will be faced with the cost of a move (assuming the availability) and the loss of some of the goodwill.
Torquay • Newton Abbot • Paignton • Dartmouth
www.wollenmichelmore.co.uk T: 01803 213251
This firm is authorised and regulated by the Solicitors Regulatory Authority (No.563758)
I have been involved in more than one case in recent months where the sale of a business has been delayed while the seller has tried to agree terms with the landlord to extend a lease and undo the exclusion of the statutory rights for a new lease when the current one expires. You cannot blame the buyer.
Dartmouth Office: 01803 213251 33
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