How to prepare your commercial property for letting.

Introduction: Whether you’re a seasoned landlord or new to the world of commercial investment property ownership, understanding how to prepare your property for letting in the UK can significantly impact your property’s attractiveness to potential tenants. From a marketing perspective this will help to ensure that your commercial property stands out in a competitive market which is often flooded with options. In this article we will guide you through the crucial steps involved in preparing your commercial property for lease. This will equip you with the knowledge and tools necessary to attract quality tenants, negotiate favourable lease terms, and maintain a positive landlord-tenant relationship.

Whether you’re preparing to lease a retail shop, hot food premises, office space, or industrial warehouse, the principles outlined here are universally applicable.

 

1. Understand the Market

It is very important to understand your local market, including factors such as vacancy rates, average rental prices, and trends in tenant demand for different types of commercial properties. Local commercial agents such as Lansley Commercial have their finger on the pulse and can advise in this regard. Landlords must identify their target tenant demographics and businesses that are likely to thrive in the local market.

2. Property Condition and Maintenance 

It is considered best practice to ensure that commercial properties are in a good and lettable condition right from the start. This should be documented through a professional schedule of condition survey report. In many cases, commercial leases operate under the Full Repairing and Insuring (FRI) terms. Under these terms, the tenant is typically responsible for maintaining the property and covering the costs associated with repairs and upkeep.

Having the property in a good and lettable condition at the outset is essential for many reasons. It helps to attract potential tenants and maximize the property’s rental potential. A well-maintained property is more likely to appeal to tenants, leading to quicker lease agreements and reduced vacancy periods.

Documenting the condition of the property through a professional survey report provides clarity and transparency for both landlords and tenants. This report serves as a reference point to establish the property’s condition at the beginning of the lease term. In the event of disputes over repairs or maintenance responsibilities during the tenancy or at the end of the lease, the schedule of condition survey report can help resolve conflicts by providing objective evidence.

Regarding Full Repairing and Insuring (FRI) leases, it’s important for landlords and tenants to understand their respective responsibilities. Under an FRI lease, the tenant assumes the obligation to maintain and repair the property, including internal and external maintenance, and compliance with statutory requirements. Typically, the tenant is responsible for covering the building insurance for the property. This process usually entails the landlord arranging the insurance and then billing the tenant to reimburse the cost – this is usually a one-off annual payment.

Landlords, on the other hand, typically retain responsibility for major structural repairs, such as roof or foundation repairs, as well as any repairs resulting from inherent defects in the property. Landlords may also be responsible for maintaining common areas and shared facilities, depending on the lease terms.

3. Compliance with Legal and Regulatory Requirements

Before occupation or the granting of a new lease, landlords are obligated to comply with specific legal requirements. These typically include:

EPC Certificate (Energy Performance Certificate):

1. • An EPC certificate is a legal requirement for commercial properties in the UK. It rates the energy efficiency of a building on a scale from A to G, with A being the most efficient and G being the least.
   • Landlords must provide a valid EPC to prospective tenants before the property is marketed for lease or sale. It outlines the building’s energy usage and suggests potential improvements to enhance efficiency.
   • Failure to obtain and provide an EPC certificate can result in financial penalties and may hinder the leasing process.

EICR Certificate (Electrical Installation Condition Report):

1. • An EICR certificate is a safety inspection report that assesses the condition of a property’s electrical installations, identifying any defects or potential hazards.
   • Landlords are required to ensure that the electrical installations in their commercial properties are safe and in proper working condition. An EICR certificate must be obtained by a qualified electrician and renewed periodically.

Gas Safety Certificate:

1. • A Gas Safety Certificate is mandatory for commercial properties with gas appliances or installations. It verifies that gas appliances, fittings, and flues are safe for use and meet legal safety standards.
   • Landlords must have gas appliances inspected and serviced annually by a Gas Safe registered engineer. The engineer issues a Gas Safety Certificate upon completion of the inspection, which is valid for one year.

Fire Safety:

1. • Landlords have a legal duty to ensure that commercial properties comply with fire safety regulations to protect occupants in case of a fire emergency.
   • This may include installing and maintaining fire detection and alarm systems, emergency lighting, fire extinguishers, and fire escape routes. Regular fire risk assessments are also required to identify and mitigate potential fire hazards.

Asbestos Management:

1. • Landlords are responsible for managing the risk of asbestos exposure in commercial properties in accordance with the Control of Asbestos Regulations.
   • This involves identifying and assessing the presence of asbestos-containing materials (ACMs) within the property and implementing measures to manage and control the risks associated with asbestos exposure.
   • A comprehensive asbestos management plan should be in place, including regular inspections, asbestos surveys, and appropriate training for staff and contractors working on the premises.

4. Flexibility in Lease Terms Flexibility in lease terms allows landlords and tenants to customize various aspects of the lease agreement to better suit their particular needs and preferences. Being flexible to a degree goes a long way to ensuring that both parties have a good chance of developing and sustaining a good working relationship. There are many terms that need agreeing on, we mention a few below:

1. • Length of Term – One aspect of flexibility in lease terms is the duration of the lease. Landlords and tenants can negotiate the length of the lease agreement to align with their respective goals and circumstances. For example, a tenant may prefer a short-term lease for flexibility in case their business needs change, while a landlord may prefer a longer-term lease for stability and consistent rental income.
   • Annual Rent / Rent Reviews – Flexibility in rent structure allows landlords and tenants to determine how rent payments will be structured over the course of the lease. This may include options such as fixed rent increases, stepped rent increases, or rent that is tied to the performance of the tenant’s business or based on market rent. Landlords and tenants can negotiate the most suitable rent structure based on market conditions and their financial objectives.
   • Security of tenure for the tenant – Lease agreements can include provisions for lease renewal and termination, providing flexibility for both parties. For example, tenants may have the option to renew the lease at the end of the term (inside the Landlord and Tenant Act 1954), or landlords may include break clauses that allow either party to terminate the lease under certain conditions. These provisions give landlords and tenants the flexibility to adapt to changing circumstances and make informed decisions about the future of the lease.
   • Permitted Use – Flexibility in permitted use and alterations allows tenants to customize the leased premises to suit their business needs. Landlords may specify permitted uses for the property but can negotiate exceptions or changes to accommodate tenants’ specific requirements. Similarly, tenants may seek approval from landlords to make alterations or improvements to the premises, subject to certain conditions and restrictions outlined in the lease agreement.
   • Level of Rent Deposit – Landlords often require a rent deposit from tenants. This deposit serves as security for the landlord in case the tenant fails to meet their obligations under the lease, such as not paying rent or causing damage to the property. The amount often ranges from 3 to six months’ worth of rent depending on the financial status of the tenant.

In Summary, both parties can establish a mutually beneficial relationship and maximize the value of their commercial investments if they both show flexibility. A proficient commercial agent will aid in negotiating terms that are advantageous for both parties and will subsequently prepare a Heads of Terms. This document will serve as the foundation for the commercial solicitors to draft the formal lease agreement.

5. Effective Marketing Strategies

There are various marketing strategies that Landlords can employ such as online listings, digital channels, social and other media platforms. However, collaboration with a local commercial agent may be the most effective strategy to reach prospective tenants effectively. Utilizing the services of a reputable commercial agent to market your commercial property has the following advantages:

• Targeted Advertising: Commercial agents utilize targeted advertising strategies to reach potential tenants who are actively seeking commercial space. This may involve listing the property on commercial property lettings websites, industry-specific publications, and online marketplaces frequented by businesses and prospective tenants looking for commercial properties.
• Networking: Commercial agents leverage their extensive networks and connections within the commercial industry to identify and reach out to potential tenants. This includes contacting other agents, property managers, and industry professionals who may have clients in need of commercial space.
• Property Promotion: Agents use various marketing materials and tools to showcase the property’s features and benefits to potential tenants. This may include professional photographs, virtual tours, floor plans, and detailed property descriptions to highlight its unique selling points and attract interest.
• Online Marketing: In today’s digital age, online marketing plays a crucial role in property marketing. Commercial agents utilize social media platforms, email marketing campaigns, and targeted online advertising to reach a wider audience of potential tenants and generate leads for the property.
• Negotiation and Deal Structuring: Once potential tenants’ express interest in the property, agents facilitate negotiations between landlords and tenants to reach mutually beneficial lease terms. This involves understanding the needs and preferences of both parties and structuring deals that meet their respective requirements.
• Market Analysis and Pricing Strategies: Agents conduct market analysis to determine the optimal pricing strategy for the property based on current market conditions, comparable properties, and demand trends. This ensures that the property is competitively priced to attract potential tenants while maximizing the landlord’s return on investment.

By employing these strategies effectively, commercial agents can enhance the visibility of commercial properties, attract qualified tenants, and ultimately, facilitate successful lease transactions for landlords.

6. Tenant Screening Process Thorough tenant screenings, including identity, address, financial checks, reference verifications, to ensure the suitability of prospective tenants and mitigate risks associated with non-payment or property damage. Is very important. And again, a good commercial agent is best positioned to assist the Landlord with this task.
7. Professional Lease Documentation: With the help of a good and reputable commercial solicitor along with the heads of terms document already drafted, a lease agreement will be produced along with a rent deposit deed, a licence for alterations (if required) and if a tenant does not have security of tenure then your solicitor will also prepare a statutory declaration to swear to exclude the security of tenure provisions of the Landlord and Tenant Act 1954. The Lease is a very comprehensive document that will protect the landlords interests while outlining the rights and obligations of both parties.

If you have any questions following this article, please feel free to get in touch.

We at Lansley Commercial provide a comprehensive service to Landlords seeking to lease their commercial properties to ideal tenants whilst securing the highest possible rent achievable.