The facts about property issues

Finance

The facts about property issues

Avicenna finance director Steve Downs discusses property issues

Many businesses have no choice over whether they own the property they trade from. They may not be able to purchase the freehold property, and so have to lease it.

The advantages of owning the freehold are the same as the advantage of owning your own house: no rent to pay, you benefit from any capital appreciation, and no landlord’s requirements to comply with. On the other hand, the current owner has to be prepared to sell the freehold to you and you have to finance that purchase while also possibly financing the acquisition of the business and your own home.

If you do own the premises then you need to consider how you own it (see ICP, January, p6). Should you own it in the same company that owns the pharmacy business, or do you own it in a different company or in a personal capacity? The answer will have a significant impact on your tax bill, not only now but also in the future should you sell the premises. There isn’t time in this article to detail the tax implications but your accountant can advise you, so make sure you speak to them.

If you are taking on an existing lease on your pharmacy premises you will generally have to accept the existing terms. There is no right to amend the terms on a change of lessee, so unless the landlord agrees to a change you take what is there or don’t get the property.

If you are entering into a new lease you have more flexibility to obtain the terms that you want. The obvious terms that you need to consider are the length of the lease and the rent. There are many other factors that may not be so obvious but which are very important. These include, but are not limited to:

1. Can you renew the lease at the end of the term? Some leases prevent you renewing and at the end of the lease your landlord may make you move out, forcing you to find alternative premises.
2. What is the limit of your obligations to repair the building? If they are extensive then make sure that you have a survey of the property before signing.
3. What happens if the building is destroyed? Strange as it may seem, a lease can state that you have to pay rent regardless of the building being available to you, so you need to ensure that if it is destroyed rent is no longer payable until it is rebuilt.
4. Check the rent review terms. Generally there will be a review every five years, based on open market rent, and the rent can only go up.

Although owning a property is a big upfront commitment, being stuck in a lease with unfavourable terms can be more expensive in the long run, so it is important that you take legal advice to ensure that you understand all the terms of the lease before signing.

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