I am often asked by budding entrepreneurs to review the lease of a commercial premises which is part of a small business they are considering purchasing.
The entrepreneur, understandably, is trying to avoid as much avoidable expenditure as possible and wants the lease reviewed for a competitive fee.
I can do that, of course, without any difficulty but I have to explain that reviewing the lease alone is of extremely limited value.
Because most commercial leases emanate from a standard template or precedent lease which is widely used and accepted by solicitors in Ireland. Therefore any difficulties in the proposed acquisition of the business and taking on of the lease are unlikely to be contained within the terms, covenants, and conditions of the lease which are similar across commercial leases.
What are the dangers?
Potential problems are more likely to appear in relation to other issues outside the lease, issues like
- Title-is there good legal title to the lease? Was the granting of the lease in the first instance in order?
- Planning-are there any planning issues arising from the use of the premises? And any development carried out over the years, development that would have required planning permission?
- Is the premises being used for a use permitted by the lease?
- Rates/charges-are there any issues in respect of rates or other charges that may attach to the premises and is there any arrears for which the new occupant may become liable?
- Is there a management company? Are there outstanding charges?
- What condition is the premises in?
- Are there any issues likely to arise from a fire safety perspective?
- If the business is involved in food preparation and sales are the necessary plumbing, electrical, food preparation, refrigeration issues compliant with building regulations and any applicable food regulations?
If you are considering taking on a business in which there is a leased premises you are taking an avoidable, critical risk by not having all aspects of the lease assignment investigated.
This involves pre-lease enquiries about title, planning, rates, and so forth being properly investigated. None of these issues will be dealt with by a review of the lease alone.
Yes, it will cost you more money.
Yes, there may be no further issues.
But checking the lease on its own is of extremely limited value and if your finances cannot stretch to having the transaction carried out property, with the necessary checks and pre-lease enquiries carried out, you should seriously consider your investment.
Because you cannot afford it. You are too early and it is premature.
You might be as well going to a casino and putting all your money on red, or black.
Because the likelihood is that any problems that arise from your purchase of the business will not necessarily be contained in your lease, they will probably lie elsewhere, outside the 4 walls of the lease itself.