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Commercial property terms

This is where an organisation owns the land and the building where their business is. Unless property is a primary business concern or the organisation is well established (those that have remained from the late 1800 early 1900s), most companies do not own their freehold due to the cost.

A leasehold gives you the right of possession, but not ownership, of a property for an agreed period of time.
When you hold a leasehold on a property, it remains the property of the freeholder. A leasehold is usually for a fixed period of time, and it will set out details of obligations of the leaseholder for repairs and maintenance of the property.

To rent office space:
The pattern of property tenure may be complex. It is not always a simple matter of a tenant taking a lease direct from the property owner.

If you, as a prospective tenant, are taking a lease on a building you might be negotiating a new lease with the freeholder. On the other hand you might be entering the chain lower down and taking an assignment of an existing lease, or perhaps a sub-lease.

With the new lease you should be able to negotiate the terms to match your requirements. With an existing lease you will be bound by the conditions that it already contains (you decide before signing whether you can live with these or not).

In managed offices:
This is where a company rents office space from an agent. The agent (and not the owner) is then responsible for managing the building. This entails collecting rent and dealing with any problems that can occur (such as broken lifts / heating / plumbing problems). For the tenant, effectively the agent is the landlord.

Rent reviews:
If you occupy your business premises as a tenant, the lease document provides the opportunity for the rent to be reviewed at intervals: often every three to five years. There is inevitable scope for disagreement on the level of the new rent and a chartered surveyor, with an intimate knowledge of the property market, has a vital role to play in advising and possibly representing you. You need to be sure that you comply and in good time with the various steps required by the rent review process. If you fail to do so, the rent the landlord is asking for may automatically apply.

Renewing leases:
It can be a worrying and uncertain time for business tenants when a lease comes close to expiry. Although it can also be a time of opportunity. You may be able to renew the lease on better terms or you may be able to move to more suitable premises.

The expiry of a lease does not normally mean that you have to move out of your existing premises unless you want to, because the law generally gives security of tenure to business tenants (although, there are exceptions). But if you want to exercise your right to a new lease there are vital steps you must take within prescribed time limits.

Service Charges:
In addition to rent, there are certain other regular payments that you as tenant may need to make to the landlord. Particularly where you occupy only part of a larger building, the landlord may charge you a portion of the service costs that he or she supplies the building as a whole: maintenance of common areas, decoration and maintenance of the buildings exterior and the like. This will generally be described as a service charge.

It is important to ensure, before signing the lease, that you understand the basis on which service charges will be calculated and the likely sums involved.

Assessing potential premises and matching these to business needs:
Think the process through logically. The best sequence may be:
Decide on location. If you get this wrong there is no way of correcting your mistake except by moving again! If your business is in manufacturing, ease of access to sources of raw materials and your markets may be essential. If you are running a shop, it should clearly be in a location where the public have easy access. For cost reasons you may have to accept some compromise.
You need to consider your business strategy, the number of people you will be employing, the processes used in the business and the plant/machinery required. The type and location of property required for a manufacturing business with heavy plant will be different from that required for a software or distribution business. Consider also your ongoing plans. Should you ensure at the outset that there is space for expansion or will you rely on a move to larger premises at a later date as the business expands? Think about the quality of the workspace environment and how this may impact staff and their productivity. All of these considerations must be thought through before you make a final choice about your premises.

Next, prepare a specification of the premises you want. Sketch out a plan on graph paper, detailing your requirements. From this you can calculate the floor area you need. Do not forget car parking and loading and unloading facilities. And remember your utilities requirements what power supplies will your processes require, what telecommunications facilities, for example?

The other key decision you have to make at the outset is whether you will be purchasing or leasing the premises.

Calculate how much you can afford to pay in outgoings on the premises whether you buy or lease. In addition to rent or mortgage repayments you will need to allow for general rates, water rates, service charge for the maintenance and cleaning of common areas and the buildings insurance.

To find a surveyor call RICS contact centre on 0870 333 1600 or log on to our website on www.rics.org .