What a commercial lease really costs

Headline rent is a fraction of it. The additional costs are substantial, recurring and often not obvious in the particulars.

Premises are usually the largest fixed commitment a small business makes, and the quoted rent understates it considerably.

Step-by-step

1. Enter the rent and the term.
2. Add service charge, rates and insurance.
3. Add fit-out and one-off costs.
4. Read the total over the term, and per month.

What sits on top of rent

• Business rates or property tax, often a substantial proportion of rent.
• Service charge, for shared areas. Ask what it has been for the last three years, not what it is estimated at.
• Buildings insurance, usually recharged to you.
• Utilities, which in an older building can be startling.
• Repairs. Depending on the lease, possibly including the roof and structure.

Repairing obligations deserve legal advice

A full repairing and insuring lease can make you responsible for putting the building into good repair — potentially better than you found it. On an older building that is an open-ended liability, and it is the clause that most often produces an unexpected five-figure bill.

A schedule of condition, agreed at the start, limits it. Getting one is far cheaper than not having one.

Dilapidations at the end

When the lease ends the landlord may require the property restored to its original state. That includes removing your fit-out. It is a real cost, it arrives when you are least prepared for it, and it should be provisioned for from the beginning rather than met from cash flow.

Break clauses

A break clause is worth a great deal, and its conditions are usually strict — notice periods, rent paid up to date, vacant possession. Missing a condition invalidates the break and commits you to the full term.

Frequently asked questions

What costs come on top of rent?

Business rates, service charge, insurance, utilities and repairs. Together they commonly add a substantial proportion to the headline figure.

What is a full repairing and insuring lease?

One where you are responsible for repairs and insurance, potentially including structure. On an older building it is an open-ended liability, which a schedule of condition agreed at the outset limits.

What are dilapidations?

The cost of restoring the property at the end of the lease, including removing your fit-out. It is a real liability that should be provisioned for from the start.