If you are thinking of starting a new business, there are many decisions you will have to face in the early stages, such as “what type of business should I start?” (for advice, click here). Perhaps most importantly, you will need to consider where you will run your business from. Location may be key due to its direct impact on footfall, clientele and overheads, particularly if you are starting a retail venture. Here are our tips on the main factors which you should consider when making this decision:
Running a Business from Home
If you are thinking of running a business from your home, you will need to consider whether there are any restrictive covenants in the charges register on your title register or contained in any conveyance which will restrict the use of your home. You can obtain a copy of your title register from the Land Registry for a small charge. Many properties are burdened by restrictive covenants which prohibit the property being used for certain purposes and various activities such as the production and sale of alcohol. If you start running your business from home without checking the title documents, you may be liable for any breach of covenant.
If you are renting your home, you will also need to check the terms of your lease, as this may contain restrictions limiting the use of the property. You may also need to obtain your landlord’s (freeholder’s) consent before running a business from your home.
If you have a mortgage, you will need to check with your lender as to whether their written consent is required before you start running a business from your home; without requisite consent, you may be in breach of your mortgage conditions.
Another factor you will need to consider before running a business from your home is whether this will have any effect on your buildings insurance or home and contents insurance. You will need to check your policy thoroughly to ascertain whether this is likely to invalidate your home insurance in any way, whether there are any prohibitions or whether it is likely you will need to take a new, additional business and business assets insurance policy.
Acquiring New Premises
If you are considering obtaining new premises to run your business from, there are two main options: (1) you can buy premises (either outright or with the aid of a mortgage), or (2) lease (rent) new premises.
There are several advantages to buying premises, such as:
• Buying a property may provide a sense of security as business owners can rest assured knowing that the property is theirs and theirs only;
• Following on from above, when you own a property outright, you are able (subject to any restrictive covenants and/or planning consents) to make any alterations/renovations/decorations you wish to make to the property without having to obtain consent from a landlord;
• When you own a property, you have the ultimate say in who does and does not have access to the property at any given time, whereas when you rent, the landlord(s) and their contractors will have a right of access to carry out works, inspect the property, etc.; • Buying a property may be viewed as a long-term investment. If you decide to sell, you may receive a profit; alternatively, you may be in a position to retain the freehold of the premises and rent them out to other business owners to secure rental income;
• If you own a property, you will not usually be subject to any service charges or maintenance fees and it is also more unlikely that you will be part of a parking scheme which involves penalties for non-compliance.
If you do not consider yourself to be in a position to buy a property, there are other options available to you. You can run your business from someone else’s property under a licence: if you obtain a licence, you are essentially obtaining permission to do something on the landlord’s property; the permission granted by the landlord prevents you from committing any act of trespass. By obtaining a licence to use a property, you would be obtaining a personal right which offers no security; a licence would not give you any legal or equitable interest in the land. If the landlord decides to sell the land, the licence will immediately end and you will have no right of action against the landlord. You may want to consider a licence if you are carrying out your business as part of a concession arrangement in a wider store.
Another option available to those who do not wish to purchase premises is to rent premises under a lease instead. There are several advantages to renting premises, such as:
• Renting premises can often give business owners greater flexibility (dependent on the contractual term and the renewal provisions), making it easier to obtain larger/smaller/cheaper premises as necessary. When taking a new lease, some of the main considerations are as follows:
- The length of the contractual term;
- The annual rent, whether VAT is chargeable on any rents, and whether any rent-free period or fit out costs will be negotiated;
- The frequency of rent reviews and how the rent will be calculated upon review (e.g. open market rent, RPI increase or stepped/staggered set rent increases);
- Whether or not the lease will benefit from the security of tenure provisions; and
- Whether or not the lease will include a break option in favour of the tenant and/or landlord.
• By taking a lease, you will be granted the right of exclusive possession of premises by the landlord. Your possession of the premises will be granted for a determinable period of time and will create a contractual relationship and an estate in land. Under a lease, you will be able to exercise your right of exclusive possession by excluding the landlord and third parties from the land (except to the extent that the landlord has reserved rights of entry for specific reasons, such as to inspect the property’s condition and carry out any necessary works).
If you are considering starting your own business and/or acquiring commercial premises, please do not hesitate to contact our experienced and highly regarded Commercial Team on 01702 338338 or firstname.lastname@example.org.
This article does not necessarily deal with every important topic or cover every aspect of the topics with which it deals. It is not designed to provide legal or other advice. If you require specialist advice on this topic, please contact us to discuss how we may assist you.