There are 5.5 million small businesses in the UK, and according to statistics, around 60% of them fail within the first 3 years. As a surveying practice, we encounter people in varying stages of their business lifecycles, and it’s not uncommon to find a business in significant hardship but tied in with a business lease. So what can someone in this situation do? There are two choices that I have seen:
Closing the business – This is the nuclear option of the two and usually happens when the business owner files to wind up the business. The entity will cease to exist, and the liability is limited in a scenario where the tenant is an LLC. In situations where the tenant on the lease is an individual director of the business or the director has given a personal guarantee to the lease, the liability is not limited, and directors can be on the hook for owed rents and dilapidations liability. In the cases where a guarantee has been provided, leases can require that an “overriding” lease is created with the guarantor being the new tenant if the business tenant ceases trading. Before closing the business, here are some property questions to consider:
➡️What will the dilapidations liability be?
➡️Will my guarantor or I be on the hook for the lease?
➡️Will I lose my rent deposit?
Selling the business – This can be an amazing option and can result in a cash lump sum that can be a good payout to walk out of the business. This is a more time-consuming option to exit the business because it depends on your ability to find a buyer. However, this option can be great because the business sale price can be agreed to cover leasing fees, surrender premium, and any arrears you have in your existing lease. Anything left over can be a nice little exit package for you as the outgoing tenant. Before closing the business, here are some property questions to consider:
➡️Does your lease grant the ability to assign?
➡️Will the landlord agree to surrender your existing lease and grant a new lease to the buyer?
➡️Will there be a surrender premium payable?
In these cases, Landlords can use the leverage they have in this situation to pursue higher rents in the new lease, so that’s something to watch out for. Here at Olawill, we provide affordable, reliable property advice regardless of what season you are in your business, and we specialise in dealing with tricky leasing situations.
So if this is you or you know anyone in this scenario, please reach out today and book a free consultation by emailing sales@olawill.co.uk today.