The last five years have been hard for small and family businesses, so how has the recession affected their prospects for setting up commercial premises? And what is the knock on result of this for landlords, and for those set to take over the business in the future?
In our latest Tempo feature we explore the difficulties and opportunities faced today by those businesses that form the backbone of our local High Streets.
Restoring the fortunes of the High Street has become a major challenge of late. We’ve had recommendations from the Queen of Shops, Mary Portas and now more recently the report from former Wicks and Iceland boss, Bill Grimsey.
So although the fact remains that one in ten town centre units currently stand empty, the good news is there is widespread recognition that something needs to be done.
The High Street relies on commercial activity and empty shops and offices benefit no one. Landlords do not generate income from empty properties and tenants cannot generate an income unless they are trading. In difficult economic times landlords and tenants share a common purpose in keeping the commercial property wheels turning.
Ronnie Sembay is head of Pagan Osborne’s Commercial and Business Unit and with over 30 years’ experience of drawing up leases he agrees that good landlord / tenant relationships are pivotal. He also acknowledges that times have changed as have business priorities.
“Before the credit crunch, when money was more readily available and property prices were rising steadily, a tenant looked to the security of a longer term lease so they could “put down roots” and see their business grow over a period of time,” he explained.
“By the same token, the landlord had the comfort of a guaranteed rent for the foreseeable future, usually boosted by an increase in rent every five years or so. Terms of twenty years or more were standard and the bargaining power of landlords generally meant that the poor tenant not only had to pay their own legal costs but those of the landlord as well in setting up the lease.
“Times (and terms) have changed. Tenants no longer have ready access to bank funding and more often than not have to rely on their own savings as start-up capital. Trading conditions are much more uncertain so tenants are not prepared to take on longer term commitments. Landlords have had to accept this new economic reality so shorter term leases, perhaps five to ten years, are now the norm. Even in a short term lease there will generally be a break option allowing the tenant to go early if they wish.
“In addition to a break option, tenants are usually able to negotiate a rent-free period at the start of the lease to give them some “breathing space” to help establish their business. Unfortunately for landlords both parties now pay their own legal costs.”
The effect of the credit crunch and financial crisis of five years ago is that any small business, sole trader or start up retailer right through to the big public and private sector landlords needs to build sustainability into their business strategies.A good workable lease agreement can sit at the heart of this.
Ronnie continues: “When inflation rates are low, and property values fairly static, landlords can no longer rely on getting an increase at a rent review. For a landlord, a tenant who pays their rent on time and meets their obligations under the lease is worth their weight in gold. Landlords may even choose not to seek a rent review to avoid the risk of unsettling a good tenant.”
Ronnie advises that contractual relationships have to be right from the start and in today’s economic climate it is in the best interests of boththe tenant and the landlord to work together. Leases may not make the headlines when the latest report on the High Street is published, and yet they can be fundamental to a successful town centre.
Did you know that succession planning is as important as figuring out how to start a business?
In a family business, working out how best to pass on the torch fairly and cost effectively while protecting your family can be complex and sometimes distressing.
How the business you have poured blood, sweat and tears into over the years is valued and the various tax implications of business succession have to be taken into account, alongside the more emotionally-charged relationship factors, making this one of the hardest challenges a family business can face.
Succession issues can be uncomfortable to consider, but ignoring them or putting things off will not make them go away. And while solutions exist to such quandaries, they won’t appear overnight which is why it is essential to start succession planning as soon as possible.
If you need advice, contact Ronnie Sembay for a free 360 Business Review and don’t put off until tomorrow what you can do today.
The 360 Business Review Service
The 360 Business Review will help identify issues you may have overlooked and the steps you could take to resolve any present problems. We could look at commercial leasing arrangements, tax liabilities and succession planning to keep your business moving in the right direction into the future.
If you're interested in finding out more, or would like to book your free business review email us or call 0131 624 6820 for Edinburgh, 01334 475 001 for Fife.