When landlords let a commercial property, their focus often falls on how much rent they will charge and how long they want to lease it for. These are, of course, important factors to think about, but they are not the only ones that deserve attention.
How the property will be used is something that could slip a landlord’s mind when looking for prospective tenants.
A tenant may look perfect on paper, but if the business they will be operating at the property does not align with your objectives or tenant mix, problems could soon follow.
Suitability of the tenant’s proposed use
In initial meetings with prospective tenants, you should ask what their proposed use of the property is and decide if this complements the building as a whole and your commercial objectives.
For example, a ground-floor unit beneath residential flats may be entirely suitable as an office or retail shop but, if that same space is used as a hot food takeaway, it could give rise to complaints.
You might be tempted by the higher rent or strong covenant they offer, but this doesn’t always offset the disruption that comes with an unsuitable use.
Having these discussions early will enable you to discuss from the outset how such issues could be mitigated, for example, by controlling the tenant’s hours of operation or requiring the installation of plant and equipment that will minimise vibrations or reduce odours.
Protect existing relations
If you own multiple units within the same building or even along the same street, the type of tenant you introduce can have a ripple effect.
Existing tenants may expect that their landlord will not introduce competition next door, and leasing a nearby unit to a competing business could place strain on relationships with neighbours.
Reputational implications may follow, as the mix of uses in a parade can influence how the area is perceived.
If existing relationships are strained, rent reviews, future lease renewals and even a sale may become more complex and could even be put at risk.
Don’t overlook planning restrictions
Before you agree to the tenant’s proposed use or change of use, it is critical to understand what the property can be legally used for. Planning laws may restrict the use of a property to a particular category and require consent for a change of use.
If a tenant uses a commercial property for a use which is not permitted under planning legislation, the landlord may face enforcement action, civil fines or criminal prosecution.
Not using the property within the parameters of the law can also affect the property’s value, its marketability and the stability of the tenancy.
Consider the operational impact
Not all issues are immediately visible, and the nature of a tenant’s operations can have an impact on the building and those around it. Some tenants operate businesses which require machinery and other equipment or systems that can generate noise, vibration and odours.
Restaurants, dry cleaners and industrial units are good examples. Other businesses may operate late into the evening or very early in the morning, such as hot-food takeaways, off-licences and supermarkets.
Odours, noise, vibration and increased footfall at unsociable hours are common causes of local complaints.
Match your own plans and protect the value of your property
The use of your property will not just affect its capital value and marketability but will have implications for its open market rental value. When negotiating a lease, both parties should also give careful consideration to the effect on any rent review or statutory renewal that the definition of ‘permitted use’ may have.
If you’ve considered redevelopment, refurbishment or a future change of use, the use you permit today could either facilitate or hinder those ambitions, especially if a change of use requires a bespoke fit-out.
Ideally, you will find a middle ground between keeping the property attractive to tenants and protecting it as an investment.
Getting the right advice
The use of the property will affect how it performs over time and you should seek early advice to ensure the proposed lease terms reflect the immediate deal as well as your long-term needs.
Our professional team can advise on heads of terms before they are agreed and draft a lease that helps avoid unnecessary complications or disputes further down the line.
If you would like further support or advice on your commercial property lease, please get in touch with our Head of Commercial Property, Juliet Rayner, at juliet.rayner@mackrell.com or at 0207 420 4194.
