How To Choose Commercial Property Agents

Commercial Property AgentsYou need to find a tenant for the new office you have just finished refurbishing and so you go on the internet looking for Commercial Property Agents.  You are instantly assaulted with thousands of companies offering properties throughout the UK and abroad.  Often the agents are offering the same properties, so how do you choose which commercial property agent to use?   Here are some key things to look for when choosing an agent.

Initial Negotiations: Offers and Counter-offers

A good commercial property agent should guide the commercial landlord or commercial vendor as to the terms to offer tenants before the property is put on the market but often the property is offered as a lease or for sale and the agents will wait for offers to come in and then negotiate with the buyers.  So it is a good idea to set out your worst and best position to the agent in terms of sale price or rent so that the agent does not come back with an offer which just does not work commercially.   The negotiation will go back and forth with the tenant or purchaser making an offer and the agent going back to the Landlord or Seller with a steer as to whether the offer is realistic fair or not competitive.    If you are new to the world of commercial property then the good agent will not use jargon and will not try to patronise you but will guide you through the process providing explanations in plain English of any technical terms being discussed and there is plenty of jargon in this area.

Heads of Terms

Once the negotiations are finished the commercial property agent will prepare a document sometimes called Heads of Terms or called a Memorandum of Letting (for the grant of a lease) or a Memorandum of Sale (for the sale of a property).    There is a great skill to preparing Heads of Terms and a good commercial property agent will earn his fee if this task is performed effectively.  The skill is to cover all of the key issues so that there can be no dispute later on when the solicitors are instructed but not to have so much detail that you are effectively copying out the clauses in the Lease or in the Transfer (for a sale of property).

For a letting the lease should cover most of these key issues:

Rent

The initial rent

Rent Review Pattern and the basis for review eg five yearly, three yearly on open market basis with ultimate determination by surveyor acting as expert or arbitrator.

Premises

How is this defined?  Should be a detailed description including postcode and ideally with a plan attached showing the extent of the demise edged in red.

Parties:

Landlord

Tenant

Guarantor (if any)

Service Charge:

Is this capped? Or subject to a ceiling?   Is it a fixed percentage or a fair and reasonable proportion and if so is it calculated by reference to floor area?  Is there a provision for the service charge accounts to be audited by an accountant?

Insurance:

Who insures and against what risks?

Repair:

Is it repair of the non-structural internal parts of the premises only and if so does the Landlord covenant to repair the rest of the building not let to other tenants?  Is the premises in a good state of repair or if in disrepair does the repairing covenant need to be qualified by reference to a schedule of condition?

Signage:

Is this to be approved prior to the grant of the lease?

Alterations:

Is this to be approved at the same time as the grant of the Lease and are the alterations to be governed by a Licence for Alterations?  If the latter, is the Tenant to be charged for preparing the licence for alterations because your solicitors will charge you extra for this document?  Most solicitors get at least £750 plus VAT for a licence for alterations.

Assigning, underletting and charging

Is the Tenant going to be allowed to sub let part of the premises?   Or is sub-letting to be prohibited?  Can the tenant create a mortage over the lease?  Does this require the Landlord’s consent?    What conditions will you impose on an assignment of the lease?  Authorised Guarantee Agreement, directors guarantees, rent deposits for  6 months rent?

Rights to be granted to Tenant

Parking rights, rights to use toilets in the building, rights to load and unload, rights to put air conditioning equipment on the roof of the building, rights of way over estate roads, rights of emergency escape via escape routes.

Rights to be reserved to the Landlord and other tenants

Rights to build extra buildings, floors.  Rights of entry on to the Premises to carry out repairs to the rest of the building.  Rights to erect scaffolding or temporarily alter rights of way during works.

If these points are covered adequately in the Heads of Terms, both parties will save themselves a fortune in legal fees as the solicitors will not be able to argue over these issues.

Land Registry Compliant Plans

A good commercial property agent should be able to sort out a Land Registry compliant plan for you as Landlord.  In order to be Land Registry compliant it has to have a recognisable scale, a north point and have sufficient identifying features on it so that the Land Registry can plot it on to the Filed Plan which is the master plan kept at the Land Registry.

Energy Performance Certificates

Landlord and Vendors must have commissioned an energy performance certificate before they can market their building.  The penalty for breach is a hefty fine imposed by the Trading Standards Authority.  A good agent should sort this for you.

So a commercial property agent that covers these points and offers a good competitive rate should mean you will have a good flying start in getting your building sold or let.  The next hurdle is having a good commercial property solicitor.    See our article on what to look for when choosing a Commercial Property Solicitor.

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Dominic Beeton, Solicitor
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