When searching for commercial property to rent, it’s important to have a budget in mind. It’s also vital to be aware of all the costs involved with leasing commercial premises, so you don’t encounter any unpleasant financial surprises further down the line.
Likewise, if you’re a landlord, it’s handy to know what fees you’ll need to pay in order to successfully lease your property.
With that in mind, here’s a guide to the fees involved, to help both parties budget more effectively.
The two key costs for tenants – rent and business rates
There are two main fees associated with renting a commercial property. These are rental rates and business rates.
It’s common practice for a landlord to request proof that you’ll be able to pay your rent. If you find it difficult to obtain proof (e.g. if you’re a start-up venture), then a guarantor may come in useful. This could be a parent company or investor, for example.
You might also be required to provide a deposit at the start of the tenancy, which is returned when the lease has expired. This deposit is usually between three- and six-months’ rent.
How is rent collected?
Unlike residential rent (which is typically collected monthly), commercial rent is collected on a quarterly basis. Normally, you’ll pay your service charges at this time too. Bear in mind, the landlord doesn’t legally have to provide an invoice. If it stipulates in the contract that you owe rent on a certain date, it’s your responsibility to pay it.
When setting up your business, you’ll also need to make provision for business rates. These rates are established by the VOA (Valuation Office Agency) and are reviewed fairly regularly.
Other costs involved with commercial tenancy – tenants
There are some other fees associated with renting commercial premises, which need to be factored into the overall budget. These are:
- Solicitor / Surveyor fees
You might want to hire a surveyor to inspect the property, or a solicitor to handle the terms of the contract on your behalf. Be aware that their fees can be costly – sometimes as high as a tenth of the annual rent.
- Acquisitions Agent
Often when negotiating a commercial lease, it is easiest to have a representative who helps find the ideal property for you and negotiates on your behalf, especially if this is a process which you do not have experience in. Their fees are usually a percentage of the annual rent.
Insurance is important, especially if you hold stock or valuable assets in the premises. As such, you’ll need to factor contents insurance into the price. Some landlords may also require you to contribute towards the building insurance – make sure you check before agreeing to the terms.
It’s likely that you’ll need to pay for utilities, such as gas, electricity, telephone connections and the internet. Try to forecast how much you’ll need to spend each month on these bills, as it’s useful to get an idea before committing.
If the premises are elected for VAT, then you’ll need to add VAT to your rental rate, and your service charges too. Not sure if this applies to you? Remember to make your own enquiries or ask your Acquisitions Agent, right from the start.
Usually, it’s the landlord who pays for an Energy Performance Certificate. However, this isn’t always the case, so it’s a good idea to check before signing the contract.
Costs that landlords should consider
If you’re a landlord, here’s a list of fees and costs that need to be taken into account when leasing a commercial property:
Work covered by the service charge
If you’re asking for a commercial service fee from your tenant, you’ll need to pay for the agreed services to be carried out. Depending on your contractual agreement, this might include:
- Heating or air conditioning
Property management costs
Most commercial landlords choose to work with a property management company, as it takes the stress out of the leasing process. Agents tend to structure their fees in a number of ways including:
This is a popular choice, as it means landlords know exactly what they’ll be paying each month, and what services are included in the cost.
In this instance, the agent agrees to take a percentage of the rental revenue.
Property management offers numerous advantages, both for the landlord and the tenant.
Leasing a commercial property
Regardless of whether you’re a tenant or a landlord, it’s vital to consider your outgoings. If you’re unsure of the costs involved, talk to the RIB team today. We’re on hand to answer all of your questions, and to discuss our property management services too.