I am currently looking for retail space and am concerned about the level of rent guarantee that seems to be required (12 months). As a start-up business, this is prohibitive. Is there anywhere I can turn to for help or find out what is normal in the area I’m looking?
It is fairly typical for a landlord to either seek a rent deposit or rent guarantee, and 12 months would not be uncommon. The reason they are taken is to cover void periods when, if the tenant gets into trouble, the landlord may lose rent, and have to cover liabilities such as empty rates, insurance, etc.
A 12-month void is not uncommon in current conditions. If a deposit, the prospective tenant should look closely at what interest will be paid and the conditions for calling on the deposit and releasing it back, which all should be set out in the lease. If a rental guarantee, again look at the conditions in the lease. A big mistake that owners sometimes make, particularly partnerships and limited companies is to give a personal guarantee and forget to cancel it when they retire or leave the firm. You hear of cases where somebody has been retired for many years, the firm they worked for goes bust, and their guarantee is called on. So always remember to cancel your liability in such circumstances. Also, it is a tenants market and so always be prepared to haggle on terms. Nothing is cast in stone in a lease.
This is what the industry leasing business premises code says on the matter: ‘The lease terms should state clearly any rent deposit proposals, including the amount, for how long and the arrangements for paying or accruing interest at a proper rate. Tenants should be protected against the default or insolvency of the landlord. State clearly the conditions for releasing rent deposits and guarantees.’
You might like to look at the industry code website, particularly the ‘occupier’s guide’ which is aimed at the small business thinking of leasing premises. It goes into the points in more depth and proffers helpful tips.
In addition I would always get a solicitor to look over a lease and flag up any onerous terms, although I appreciate that a start-up business may think this an unnecessary cost.
See also: BPF: Lower rent bad news for small firms