Premiums, deposits, rent and business rates explained

When searching for a suitable commercial property to operate your business from, it is highly likely that one of your biggest concerns will be the costs involved. In our previous article, “a guide to leasing property for small to medium businesses”, we explained the process of leasing commercial property and in this article we will focus on the financial aspects of the acquisition.

The property’s owner, the landlord, should provide you with the expected full financial costs associated with leasing the building prior to or during the negotiation of the lease. As well as the premium, deposit, rent and business rates this should also include security deposits, personal or company guarantees and any other guarantees requested by the landlord.

Although they are more common in Scotland, a premium is a lump sum paid to the landlord that covers the act of granting a lease.

The deposit is separate from the premium and typically amounts to three months of rent. Your deposit will be retained for the duration of the lease and will be paid just before the lease completes in addition to your first month’s rent. Your landlord will usually hold on to your deposit within their bank where it will accumulate interest. At the end of your lease you will receive your deposit back plus any interest earned but minus any deductions the landlord has had to make due to costs incurred by breaches in the lease agreement. If you do breach your lease agreement, the landlord is likely to use your deposit to cover any costs involved.

When negotiating the rent you should ask when the rent needs to be paid. This can be weekly, monthly or quarterly but it is down to you and the landlord to agree rent payment dates that are suitable for both parties. Additionally, you should clarify how the landlord would like the rent paid. Usually they will request the rent to be paid in cash, by cheque, with PayPal or by BACS.

UK business rates are a tax that is charged to businesses that occupy a non-domestic property to help towards the cost of local services. Business rates are calculated by multiplying the property’s rateable value with the ‘poundage’ which is set by the government. Rateable values are reviewed every five years and are given by the Valuation Office Agency (VOA), and are calculated based on the properties size and usage. Some small business may qualify for business rate relief; therefore it is worth using the VOA’s website to estimate the business rate of the property you are interested in and seeing if your business would qualify for business rate relief.

When searching for a commercial property it is advisable that you seek qualified legal assistance from experienced commercial property solicitors. The Rollingsons commercial property team will discuss your goals and work to protect your interests in respect of the terms of the lease. For more information or to arrange an initial consultation, please contact us on 0207 7611 4848.