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How should I choose business premises?

After salaries, premises are usually a business’s biggest overhead so it’s important to make the right choice. Here’s what you need to know when deciding on your business premises.

Do I really need business premises?

Depending on the nature of your business you may not need work premises – instead you may be able to use your home. Obviously, this isn’t going to be possible if you live in a flat and your business is engineering or vehicle repair, but there are many situations where working from home is the most flexible and cost effective option. For example:

  • If your business mainly involves working on your own with a computer and a phone, you may be able to accommodate this in a spare bedroom, or a garden building. When you need to meet customers or clients you could hire space in one of the many business hubs that are springing up all around the country.
  • If you have a garage or other outbuilding, subject to planning permission, you may be able convert this to an office, or a small workshop, or a storage facility – e.g. for stock for a mail order business.

Be aware that if you do opt to run your business from home you still need to have proper insurance and permissions. Permission could be required from your:

  • mortgage provider or landlord
  • local planning office – e.g. if you’re planning on making major alterations to your home
  • local council – e.g. if you’re going to get lots of customers or deliveries, you want to advertise outside your home or if you need a licence to run your business

How do I search for business premises?

Here are some of the ways you can track-down suitable premises.

  • Web searches. Many websites for finding homes to buy and rent, have sections for commercial properties too. There are also websites that specialise in commercial property
  • Newspapers. Many local newspapers have adverts for vacant business properties
  • Commercial property agents. You can register with commercial agents who have expert knowledge of available business premises in your chosen area. You might even appoint one (or a surveyor), who – for a commission – can act as an intermediary and help you negotiate with a landlord or seller. Make sure you fully brief an agent and keep in regular contact with them
  • Others. Other bodies who might be able to help include local chambers of commerce, trade associations, local authority business support units, and enterprise agencies.

In the hurly-burly of finding a property it’s easy to overlook vital aspects, so ensure you make a list of requirements. 

  • Your preferred location/s 
  • Your space requirements. How much space do you need for offices, customer and client areas, storage, equipment, and parking?  Do you need a staff kitchen or just a small area to make hot drinks? If you need to expand what sort of space might you need? 
  • Your service requirements. Depending on your business you may have requirements beyond essentials such as power, heating, phone, plumbing, drainage, and waste disposal. For example, will you have plant, equipment and machinery that needs special arrangements for power and ventilation? Will you need to dispose of toxic waste? 
  • Your access requirements. Will you and your staff only need access during daylight hours from Monday to Friday, or will you need to get in at night and at weekends? Will you be having or making deliveries outside of normal office hours? 
  • Your security requirements. Do you have valuable stock, tools or equipment that need special security measures? 
  • Your image requirements. Will your premises need to project a certain type of image to your customers? 
  • Your special requirements. Will you need special permissions or licences? For example, does your business involve noisy activity, food handling, or dealing with hazardous materials?

Should I lease business premises?

If you do need business premises you may want to consider leasing, which is a form of renting. We look at the potential advantages and disadvantages of leasing below.

AdvantagesDisadvantages

Choice 

Most business property for rent is leased so you have a wide choice.

On-going commitment

As your business develops you might need to move on within the lease period. You may be liable for the rent for the remaining time of the lease. If so, you’ll probably need to find a new tenant. You may also need to pay the legal costs of this, and you may continue to have liabilities such as repairs.

Stability

Leases can run from three to 25 years (typically about eight years), so you have mid-to long-term security.

Rent increases

Most leases contain provision for rent reviews every few years, so you could find your rent increasing in line with market rises. This could cause you problems if you’ve chosen premises that are at the top end of your budget. 

Responsibility

Depending on the details of the lease, you’ll probably have less responsibility for the upkeep of premises if you rent instead of buying. For example, external maintenance is more likely to be down to the landlord, but you’ll probably have to pay service charges.

Restoring condition

At the end of the lease period you’ll probably be required to return the premises to the condition you found them – this includes removing or putting back any partitions, doors, etc, that you’ve changed. You may have to pay “dilapidations” for the costs of repairs that the landlord believes you should have carried out.

Adaptation

Subject to the terms of the lease, you usually have the right to make alterations, so you can adapt the premises to meet your precise needs.

 

 

Should I licence business premises?

Licensing is a type of renting that’s provided by private landlords, local authorities and agencies. The potential advantages and disadvantages of licensing are listed below. 

AdvantagesDisadvantages

Flexibility

Licences are for short periods – e.g. a year – so you don’t have to worry about making a long-term commitment to a property that you might outgrow or need to change as your business develops. 

Lack of stability

The short-term nature of a licence means that you don’t have the same sort of security you have with a lease. If the licensor gives you proper notice (which could be as short as a month) you’ll need to leave. You don’t have an automatic right to renew a licence.

Simplicity

Licences are normally more straightforward than lease contracts, so arrangements can be made quickly and don’t need as much solicitor’s time. Often, the licence comes as part of package which also includes elements such as key insurances, business rates, and maintenance.

Lack of choice

If you are looking for something other than an office or workshop, you may face a limited range of choices.

 

 

 

Cost

Solicitor’s fees should be considerably less than for leases and sales contracts. Some licensed premises are subsidised, e.g. by the local council or an enterprise agency.

Lack of adaptability

The terms of the license often prevent you adapting the premises to meet your specific needs.

 

  

Should I buy business premises?

You may want to consider buying business premises. 

AdvantagesDisadvantages

Control

If you get a fixed-rate commercial mortgage you know what your outgoings are going to be for the long-term, whereas rents can keep increasing. If you own the premises you can decide when you want to sell them.

On-going commitment

Purchasing business premises is a big commitment that doesn’t stop at the sale. You will face on-going costs and time in maintaining, repairing and managing the building. 

 

Customisation

You’ll be able to do what you want with the premises – subject to local council building controls and planning permissions.

Risk

By purchasing you’ll be locking up capital that you might want to use in other ways. Also, although the long term trend has been for property prices to keep rising, there’s no guarantee that this won’t change. And don’t forget that if you make a profit when you sell, you’ll need to pay Capital Gains Tax.

Investment

Property prices usually go up, so buying a property at the right price tends to be a good investment. You could always rent it out in the future.

Time and money

You’ll want to be certain that the property you buy is the right one, so you may need to spend a lot of time looking for it. The costs of purchasing, including legal fees, land searches, stamp duty land tax (land and buildings transaction tax in Scotland), tend to be more expensive than those involved with renting. You’ll also need a deposit, which tends to be between15%-30% of the purchase price.

Where should I locate my business premises?

Here are factors you need to consider when thinking about location.

  • Near to similar types of businesses

    For some businesses it’s beneficial to be located near to similar types of businesses as this helps to attract larger numbers of customers. But for other sorts of businesses it pays to be located at a distance from competitors.

  • Research areas

    Find out the costs of business properties in the different areas you might want to locate in. Are some areas cheaper than others because they’re not very good places in which to do business? Do some locations attract financial incentives such as grants?

  • Easy to get to

    Look for premises that you, your staff, your suppliers and, if necessary, your customers or clients, can get to easily. If you rely on passing trade spend some time outside potential premises and count the numbers of passers-by. Check out how easy it is to park nearby.

  • Facilities

    Check if the areas you are considering have adequate facilities such as banks, shops, eating places and parking.

Checklist: What should I do once I’ve found premises I like?

Once you have found suitable premises you will need to consider the following. Login to save this checklist to your profile for future use – as you work through the list, any checkboxes that are ticked or unticked will be automatically saved to your profile. (To register to join and enjoy the benefits of membership click on the link at the top right of the page. It will only take a few minutes to create your profile).

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