What is an assignment of a lease?

A tenant may, for commercial reasons, wish to leave commercial premises prior to the end date of a lease.  One way of achieving this is to assign the benefit of the lease to a new tenant.  Most commercial leases will contain a clause restricting the tenant’s ability to assign the lease.  Frequently, assignments of part only of the premises will be prohibited but the lease will often allow the tenant to assign the whole of the lease subject to first obtaining the landlord’s consent which may not be unreasonably withheld.

The lease will often require the landlord to provide consent by way of a Licence to Assign for which the landlord will require payment of his legal fees. In addition, the landlord will often require the outgoing tenant to enter into what is known as an ‘AGA’. Under the AGA the outgoing tenant will have to guarantee the obligations of the tenant to whom the lease is being assigned.

An AGA is an agreement which places an obligation on an outgoing tenant to guarantee the performance by the new tenant or “Assignee” of the tenant covenants contained in the lease.

What is a rent deposit and why do I need to pay it?

A Rent Deposit is a specified sum of money, usually calculated on the basis of a particular number of months’ rent, and is payable by the tenant.  The landlord will hold this as security for the payment of rent and the tenant’s performance of the tenant’s covenants in the lease.

A Rent Deposit Deed should be entered by the landlord and tenant alongside the lease and this will specify the circumstances in which the landlord can access this fund, such as where the tenant has not paid rent on time.

A rent deposit may be required where the tenant is a new company with no filed accounts or where no references are available prior to entering the lease.

Standard commercial terms dictate that a rent deposit will usually be 3/6 months payable prior to completion.

What is a rent review?

Whilst annual rents will be agreed prior to entering into a lease, it is essential to consider provisions for varying the annual rent during the term of the lease to reflect current market conditions.

As such, a lease will often specify that rent reviews will take place on every third or fifth anniversary of the commencement of the lease.

What additional costs should I expect when purchasing a commercial property?

In addition to the legal fees, you should also budget for SDLT (Stamp Duty Land Tax) and Land Registry fees, together with the fees for any surveyors that you appoint to provide advice on the condition of the building. 

What is use class F2?

F2 use class was introduced for buildings utilised by the local community. See a list of below;

  • F2(a) Shops (mostly) selling essential goods, including food, where the shop’s premises do not exceed 280 square metres and there is no other such facility within 1000 metres
  • F2(b) Halls or meeting places for the principal use of the local community
  • F2(c) Areas or places for outdoor sport or recreation (not involving motorised vehicles or firearms)
  • F2(d) Indoor or outdoor swimming pools or skating rinks

What is use class F1?

F1 use is predominantly for learning and non residential institutions. Below explains what uses are included within;

  • F1(a) Provision of education
  • F1(b) Display of works of art (otherwise than for sale or hire)
  • F1(c) Museums
  • F1(d) Public libraries or public reading rooms
  • F1(e) Public halls or exhibition halls
  • F1(f) Public worship or religious instruction (or in connection with such use)
  • F1(g) Law courts

What is use class E?

Class E is introduced from 1 September 2020 and was introduced to streamline the planning use class system. Including the prior uses of A 1/2/3 and B1, it will also include the following class D1 & D2;

  • Indoor sport recreation and fitness
  • Provision of medical or healthcare
  • Creche, day nursery or day care facility

Why do I now need a change of use from a church to nursery / medical use?

Due to the planning changes in September 2020 class D1 (non-residential institution) and class D2 (Assembly and leisure) uses have been abolished.

The majority of these uses have been merged into a new ‘Class E’, including:

  • Shops, offices and restaurants
  • Medical or health services
  • Creche, day nursery or day centre

However, buildings suitable for education and faith now fall within class F1 and community use within class F2 and therefore would require a planning application to change to the above.

What is a service charge?

A service charge, (sometimes known in a variant form as an estate rent charge) is where each household/commercial unit in a development, contribute a financial sum each year to pay for the upkeep of an area or a service that communally benefits the contributing units.

Do I need an EPC?

If you are looking to rent or sell the commercial premises or the building has just been constructed then a commercial EPC will need to be undertaken – this is a legal requirement. This is to provide the ‘economic agent’ (the prospective buyer or tenant) with the most updated information on the property’s energy efficiency.

There is no legal requirement for places of worship to have EPC reports.

What stamp duty do I need to pay on a lease/purchase?

When renting commercial property, the amount of Stamp Duty payable is calculated based on several different variables, such as the length of the lease term, the annual rent, and any premium paid for the lease. As a general rule, Stamp Duty whilst renting a commercial property is calculated based on the following rates:

  • Up to £150,000 there is no SDLT payable
  • The portion from £150,001 to £5,000,000 attracts an SDLT rate of 1%
  • The portion above £5,000,000 attracts an SDLT rate of 2%

When purchasing, the amount of Stamp Duty payable is calculated based on the purchase price on a sliding scale. This is as follows:

  • For purchases up to £150,000 there is no SDLT payable
  • The portion from £150,001 to £250,000 attracts a rate of 2%
  • The portion above £250,000 attracts a rate of 5%

How much space do I require to seat a congregation?

We would expect that there should be a requirement of 10 sq.ft. per person within an auditorium hall. Therefore, to seat a congregation of 100 people, there would be a need for 1,000 sq.ft. internal area.

What is a rent-free period and how long should I look to achieve?

A rent free period is period of time during your lease where you don’t have to pay any rent at all. Although rent free periods usually kick in at the start of the lease, you might find them at other points during the lease term.

Depending upon how much work needs doing, the duration of the rent-free period will vary: for straightforward matters, including contribution towards the cost of the tenant’s fit-out, anything between a week and three, possibly to six months.

What is the difference between a lease and a license?

A lease is the grant of legal interest in land which gives exclusive possession for a fixed period of time. A licence is merely a personal permission granting licence to occupy or do something on someone else’s property.

What is a full, repairing and insuring (FR&I) lease?

A full repairing lease means that the tenant is responsible for the cost of all the repairs and upkeep of the property and also the cost of buildings insurance.

At what stage will I require a charity commission report?

Charity trustees who know or suspect that their charity’s land is designated land should seek professional advice and if required, obtain The Charity Commission’s consent before committing to dispose of it. Charity trustees must also consider the procedures in The Charities Act 2011 when disposing of charity land.

What is the charity commission and what do they do?

The Charity Commission regulates and registers charities in England and Wales. It produces guidance for trustees on how they should meet their legal duties and responsibilities. The Commission runs an online register of charities, which provides full information – including financial – about all registered charities.

How do I fund the purchase of a commercial property?

Similar to obtaining a mortgage on a residential property, a deposit is needed alongside an affordability check. However, a bank will usually require a minimum of 25% deposit to lend on a commercial property.

Alex Martin Commercial work with specialist brokers who we are able to introduce to any potential purchaser requiring further advice.

How do I obtain a change of property use class?

You can apply for a change of use by contacting your local authorities planning department. If you do not have experience with planning applications, we would recommend employing an independent planning consultant to act on your behalf. Alex Martin Commercial are happy to provide recommendations.

What is a break clause?

A break clause is a provision in a lease which enables either the landlord or the tenant, or both, to end the lease early.

What are business rates?

Non-domestic rates or business rates are the way that those who occupy commercial (non-domestic) property contribute towards the cost of local services. They are administered and collected by local authorities.

In most circumstances occupiers of properties that are entered in the Valuation Office Agency’s (VOA) business rates lists must pay.

Business rates are charged on most commercial (non-domestic) properties such as shops, offices, pubs, warehouses, factories, holiday rental homes or guest houses.

Do I need to pay your agency fees?

Alex Martin Commercial was formed as primarily an acquisition agent and therefore likely to act on behalf of buyers / tenants to acquire sites. Our fee’s to act on a parties behalf are 2% +VAT for a purchase and 10% +VAT for a lease.

However, we are gaining more instructions where we are retained by the landlord who will then pay our fee. Primarily, these will be the featured properties shown on our website and portals such as Rightmove and PropertyLink.

I need the full address of a property, but only the area is listed?

Alex Martin Commercial will not be retained on this property and will therefore require more information from yourselves before providing further details.

What do I need to provide in order to submit an offer?

There will be different information required as to whether an offer is for the purchase or lease of a property, please see below;

Lease

  • Offer level
  • Background information (who you are)
  • Lease term
  • Break clause
  • Rent free
  • Deposit
  • Timescales
  • Rent reviews
  • Conditions
  • Solicitors details

Purchase

  • Offer level
  • Background and prior transaction history
  • Funding position (cash/mortgage)
  • Proof of funds (cash/ AIP from a bank)
  • Timescales (exchange & completion)
  • Conditions
  • Solicitors details

What is a commercial use class?

Planning use classes are the legal framework which determines what a particular property may be used for by its lawful occupants. In England, these were contained within the text of Town and Country Planning Order 1987, these use classes were reformed in September 2020.

Upon acceptance of your account request, you will obtain access to view comparable sales and rental data of Alex Martin Commercial Fi. & F2 use (formerly Di./ D2( market in the UK. Useful data for valuation purposes is available such as interactive graphs and £ per sq ft timelines amongst many other features.

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