NEW LEASE OF LIFE

Taking on a lease can be one of the biggest commitments for your salon business. Denise Ferguson of Find Surveyors shares the key information to know

What should salons know before taking on a lease?

It’s important to know that you have the right to negotiate the terms of the lease – you don’t have to accept rubbish terms offered to you.

By accepting what the landlord offers without first getting a valuation, you are potentially pushing the rental valuation up in your area without knowing it. Surveyors are the only people qualified to value the rental valuation of the property.

How do short- and long-term leases vary?

Your decision to have either a long- or short-term lease should be based on the future of your business. If you know that this salon isn’t your long-term goal, then you may wish to agree to a short-term lease and then move the salon before it becomes 100% established in that location.

Or you may wish to agree to a long-term lease, with break options, to give you flexibility and stability. You could even agree to a long-term lease and have a long-term plan to sell the salon in the future, building up the accounts to show a valuable salon.

Should I proceed with a lease if I can’t negotiate a break clause?

Break clauses are reflected in the rental valuation – you will pay for one if you have one in your lease. They are important if you plan to use them, but, if you know you will never use it then you shouldn’t be concerned. While they do give you a fixed date when you can break the lease, there are many other alternatives salons can explore if they need to lease a property.

When a salon owner finds themselves needing to action the break clause, it is rarely at the time the break clause can be actioned, so don’t get too fixated on the lease not having one. Having the ability to assign the lease would be far more beneficial to most owners.

I want to expand into additional services, but my lease doesn’t permit it. What’s the best way to negotiate with the landlord?

If your lease strictly states that you can only operate as a hair salon, for example, this does not necessarily mean it prohibits you from also offering nail services. The primary function of a hair salon could be argued to include additional services, such as nail or beauty treatments.

However, if the lease expressly prohibited nail services, then you would need to seek a Deed of Variation to amend it to allow you to include additional services. This will often be reflected in the rental valuation of the property. A restricted user clause is less valuable than an open user clause.

So, the more services you can provide in the property, the higher the rental valuation is likely to be. As such, I would negotiate a small increase in rent to allow nail services.

Plus, you could agree to pay for the Deed of Variation. This would usually be sufficient for a landlord, unless there is a genuine reason for not allowing the additional services. For example, the landlord owns another property next door, which is used as a nail salon.

I want to rent out treatment rooms in my salon. Does the lease need to factor this in?

Most leases would automatically prohibit you from renting out treatment rooms or chairs, so it is important to check your lease if you’re doing this without permission. You would need to agree to the ability to sublet for you to issue a lease (or licence) to people you are renting space to.

Many hair and beauty salons treat renters as self-employed staff but giving away space to another business is a property transaction and needs to be documented within a lease or licence, not as a self-employed contract.

What costs apart from rent I should take into consideration when taking on a lease?

Depending on what your repair liabilities are, you would also need to factor in service charge, which would include a sink fund. Sink funds are service charge monies kept on an account for future big projects – for example, roof repairs or new lifts. Service charge should only be paid for the costs of maintaining areas of the premises that you benefit from, and the landlord should provide evidence of this to you on request.

Landlords generally insure the building, and the tenant pays the landlord back for this cost by way of insurance rent. It is always worth asking for a copy of this insurance policy and premium to make sure you’re only paying for the portion that you’re occupying or benefitting from.

Business rates can be a very costly expense. You can check the business rates costs online prior to taking on a property.

Think about utility costs and the cost of putting in new utilities too. If you require the installation of an additional electricity line or gas connection, you could find yourself with costs in the thousands, and big delays.

Should I try to negotiate a business interruption clause (Covid-19 clause) in case of future closures?

You can certainly try but I don’t think any landlord is likely to want to have a current pandemic written into a long-term lease. It might be better to agree to the lease, on the terms you’re both happy with, for the length of the lease, and agree a side letter for what would happen if there were further closures due to the pandemic.

How often during a lease period should the landlord be able to make rent increases?

It is standard practice for rent reviews to be every three or five years. Longer leases would be five-yearly, and shorter three-yearly. I’m not a fan of Retail Price Index (RPI) increases, because this artificially increases market rent during times of market downturn. Open market rent reviews reflect exactly what the market is doing, as long as tenants don’t just agree to whatever increase they are given.