Rent deposits and guarantees
Personal liability
If you take a lease in your own name, you are personally liable for payment of rent and the performance of other obligations. If your business collapses or some other calamity occurs you don't want your personal and family assets to be on the line.
Limiting liability
You should resist taking the lease in your personal name. Instead set up a limited company to be the tenant. The owners and directors of a limited company are not personally liable for lease obligations. It is not in the landlord's interests to agree to this, because he loses the protection of having an individual with a house and savings he can sue if he needs to. But nowadays landlords have to accept that most tenants are just not going to take on personal liability, and they have to compromise.
Personal guarantees
Especially if you use a new company, the Landlord will want some security that rent will be paid. The estate agents may ask for a personal guarantor. Refuse that – The days when directors guaranteed their companies leases are now history.
Rent deposit
An acceptable compromise, which gives some protection to both sides, is for you to provide a rent deposit when you sign the lease. This means that you lodge a lump sum with the landlord (or it may go in a joint bank account), so that if you go out of business and your company stops paying the rent, the landlord will have the rent deposit to draw on to cover his loss (or some of it) while he tries to re-let the premises. The usual figure is three or six months’ rent. The rent deposit is generally held until the lease comes to an end. The usual requirement is that if the landlord has to take money from the account, the tenant must immediately top it up again. It is better to bear the pain it causes your initial cash flow to avoid a lot of worry later.
They will certainly want a rent deposit of at least 3 months rent. They may try asking for anything up to a year’s rent. But unless they have you over a barrel for some reason, 6 months is the most you should agree to.
Rent and rent free
Get advice on rents.
The estate agents who are offering the premises will be quoting a particular rent. It is good business sense to attempt to negotiate that down. The best person to do that for you is another local surveyor or estate agent with detailed knowledge of current rents and the demand for property in the area. Click here for a list of recommended firms.
Rent free periods.
If the premises are in a bad state of repair, or you need to carry out fitting out works before you can move in, you should consider negotiating a ‘rent free period’ - 3 months, 6 months, or whatever is appropriate - to help you to fund the necessary work. In some cases, when the property market is flat a landlord will give you a rent-free period anyway, just to encourage you to sign up. Proper advice from an expert will help you. Click here for a list of recommended firms.