Surprisingly a lot of businesses rent their property, rather than own the property freehold as you often find with people’s homes. There will often be a lease or licence in place with a landlord and rent or licence fee being paid for being able to occupy the building and trade.
This will evidently have an effect on the accounts of any business, particularly by the nature of it being rent or fee being paid rather than say a mortgage payment which is going towards their own freehold property as an asset of the business – this ‘rental payment’ will therefore need correctly accounting for both in any profit-and-loss plus any balance sheet of the business.
It’s also important to consider all the other associated property costs which a good local accountant can help advice on. Right before any lease starts there will be initial costs to consider whether survey or fit-out costs, or reduced outgoings through say a rent free period being agreed right at the beginning of the lease.
Check the Lease & Legal Documentation
During the lease you’ll need to carefully look at the running costs of the business in the property such as utilities, insurance, service-charge, and general repairs and maintenance. In commercial property the business often incurs more of these costs than in residential properties, which will need budgeting for.
Even at the end of the lease there will be exit costs including any outstanding repairs and dilapidations, and balancing service charges from the landlord which should go towards any shared costs in the building. On the plus side though, these could be credits due back if the service charge has underspent, or if you look closely into any insurance premium you’ve paid the landlord then you may be able to receive a credit back from the point of you leaving to the end of the policy.
The lease or licence taken by the business therefore needs carefully agreeing, using a combination of both property surveying and accountancy advice to help budget the true overall costs of the property and how they are accounted for.
Helpful Lease Templates
Here are a few standard lease templates that you can begin with, and although these can be free or have a small purchase costs to save legal costs in drafting from scratch, you still need separate property and accounting advice to then tailor these to your own requirements and accounts:
1. The Model Commercial Lease – a variety of lease templates for different types of property and businesses, free of charge.
2. RICS Small Business Retail Lease – this is through the RICS who are the regulatory body for Chartered Surveyors, who also provide a supplementary guide called Code for Leasing Business Premises.
3. Law Society Business Lease of Part – this is through the Law Society, and although there is a charge of £27.50 this is often used as a good bench-mark as produced from such an important organisation in the legal profession.
4. Meanwhile Lease – a little different, through a Community Interest Company.
Get The Right Accounting
Whatever property interets you have, make sure you're correctly accounting for it. With property beiung such a lareg cost and asset, then it's even more important to make sure you don't have ansy nasty surprises later down the line.