Welcome to the bi-monthly column in which experts from IBB solicitors answer legal questions submitted by you.
Q I run a small but fast-growing business in the fashion retail sector. However, I am worried about committing to a long-term commercial lease. What are my options?
This is a question many of our SME clients ask us and completely understandable, as the typical 10-year lease can be a huge commitment for a business owner – regardless of the company’s size or length of time the company has been operating. Plus it can have a huge impact on a business’s cashflow.
Remember your commercial premises are there to help you run your business effectively but without putting undue financial strain on the company. As your business is small, spending £££ on swanky offices with a long lease may not be the best option, even if the design is state of the art and the office space has impressive views.
How we work and where we work has changed over the past 10 years. If you are needing the footfall of the high street, you may be better suited to taking out a short-term lease for a pop-up shop (this can be anything from one day to one year) to test the waters before making the commitment of a longer-term lease of say two years or even of a five to 10-year lease. Typically, the liability of a short-term rental can be more limited than taking out a long-term lease. Plus you get the added benefit of being more flexible and being able to test multiple locations if necessary.
Equally what might be the right location or premises for current business requirements may not work in say five or 10 years’ time. If a short-term is not available, perhaps try to seek a right to break the lease early – maybe after three or five years.You mention your business is growing rapidly and it sounds like you have ambitious plans to continue to grow the business. If you are fairly certain of the mid to long-term future then taking out a longer lease or even buying a freehold property may be the better option, although buying a property freehold obviously has serious financial implications, so do consider whether the capital is better deployed in the business rather than tied up in property.