It's Time to Move

1 December2018

As a business evolves, it is likely that at some point that there will be a need to move to new premises. Some of the same considerations will come into play as in a domestic house move – size, location, availability and affordability are all crucial factors in the decision-making process. Little wonder that looking for new business premises, and going through the process of moving, can generate the same sort of stresses as searching for and moving to a new home.

However, there are additional aspects to consider in a business relocation. The vast majority of businesses occupy their premises on lease rather than as owners. A commercial lease is a multi-faceted legal arrangement negotiated between two parties, the landlord and the tenant, who have very different interests. In essence, a tenant will be looking for as much certainty as possible in relation to its financial obligations during the lease term and as much flexibility as possible when it comes to responding to the changing needs of its business. By contrast, the fundamental interest of the landlord is in preserving its income stream from the tenant and minimising the scope for it to be eroded by expenditure on the property.

These competing interests will need to be balanced in the negotiation of the lease terms, including:

Lease term

Tenants will seek as much flexibility as possible, given the potential need to move premises again in the future. By contrast, in order to underwrite the investment value of the property, the landlord will insist upon a minimum guaranteed term. Break clauses and options to extend can play a valuable role in finding a mutually acceptable arrangement.

Alienation

A tenant may find in due course that it no longer needs some or all of the premises. If the expiry or early termination of the lease cannot come to the tenant’s aid, it will need to assign the lease or sub-let some or all of the premises. Hence the importance of including in the lease at the outset alienation provisions which afford the tenant sufficient flexibility whilst at the same time retaining for the landlord sufficient control of the occupation of its building.

Rent review

Commercial rents are typically subject to review every three years in Jersey. Whilst ‘upwards only’ market rent reviews remain the most common, reviews tied to the Jersey Retail Price Index are also used.

Repair and service charges

Expenditure on repair and maintenance of a building, whether directly or via a service charge, can add substantially to the cost of renting commercial premises.

Alterations

The lease will need to contain a clear regime which balances the need for the tenant to make alterations against the landlord’s legitimate need for control over what is done to its building.

If this did not give rise to enough issues to be considered, a business contemplating relocation will in most cases need to consider the implications of leaving its existing premises. This may be able to be tied in with lease expiry or the service of a break notice but assignment of the existing lease or sub-letting may be necessary. Furthermore, where the existing lease is to terminate, on expiry or as the result of a break notice, there will be a need to negotiate liability for dilapidations and reinstatement with the landlord of the existing premises.

Relocating business premises is inevitably a somewhat stressful process, requiring significant time and effort from management and others in the business. However, as with a house move, the process can be eased, and financial and legal risk reduced, by working with experienced professional advisers.

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