Choose the right premises

Choosing the right premises is a key business decision.

You want premises that help you operate effectively without excessive costs.

At the same time, you want to avoid being tied to premises that might not suit you in the future.

Different options suit different businesses.

Working from home is a good option if all you need is a small office space.

You can also rent premises or buy a property outright.

Drawing up a list of what you need from your premises is a good way to start your search.

This list might include the size and layout of the premises, structure and appearance (internally and externally), including:

• Any special structural requirements, such as high ceilings
• Facilities and comfort for employees and visitors - including lighting, toilets and kitchen facilities
• Utilities, such as power and drainage, and any special requirements - for example, three-phase electricity
• Permission, including planning permission, to use the premises for your type of business
• Access and parking space - for deliveries or customers, including disabled customers
• Whether you need the flexibility to alter or expand the premises
• Whether the premises are suitable for your long-term needs

After drawing up your list of requirements, you may decide that working from home could suit you.

There are important legal and practical issues you need to take into account.

Costs

Your choice of premises will also depend on your budget. Whether you rent or buy, costs can include:

• Initial purchase costs, including legal costs such as solicitor's fees and professional fees for surveyors
• Initial alterations, fitting out and decoration
• Any alterations required to meet building, health and safety and fire regulations
• Ongoing rent, service and utility charges, including water, electricity and gas
• Business rates - more details at the Valuation Office Agency
• Continuing maintenance and repairs
• Building and contents insurance

If your requirements are too specific, you may find that your choice of premises is very limited or you cannot afford them. T

hink about which requirements are essential and which are desirable, and prioritise them to make your decision.

Choosing the right location can be abalancing act.

Ideally, the location should be convenient for your customers, employees and suppliers, without being too expensive.

For shops and other retail businesses, location is critically important. Your location must attract customers.

If you rely on passing trade, you want to be in an area where enough people who want your product or service can see you.

For example, newsagents are often located in or around train stations.

You could also benefit from customers who are attracted by other shops in a shopping centre.

Employees

For employees, the best location will be easy to travel to.

Good public transport links and local parking facilities or spaces make it easier for employees who don't live within walking distance.

Employees also tend to prefer working somewhere with good local facilities.

Near to suppliers

You may want to be near suppliers for a quick, flexible service.

Deliveries may be easier if there are good road and transport links.

Think about where your competitors are

You may not want to be too near your competitors, though clusters of similar businesses sometimes attract more customers.

Your neighbours and your location also affect your image.

Costs

Location has a major impact on cost.

If you need premises in a prime location the extra costs may be justified.

Renting premises suits many businesses and there are a wide range of commercial premises available.

Advantages of renting

The advantages of renting depend on exactly what you have agreed with the landlord.

With a typical lease, you agree to occupy the premises for a fixed number of years and pay an agreed rent, though the lease may allow the rent to be reviewed periodically.

Up front costs for leasing premises are often relatively low, though you may pay a premium to purchase the lease.

Sometimes you may also have to provide a refundable deposit.

You should also take into account legal and other professional fees.

Disadvantages to renting

• You may have significant maintenance and repair obligations
• The lease may include other obligations and restrictions
• You may have difficulties if your needs change and you want to move before the lease ends

Code of practice

A revised code of practice has been launched to help promote fairness in commercial leases.

Although the code is voluntary, it does contain useful advice that can help you negotiate favourable lease terms if your landlord does not offer a code-compliant lease.

Flexible, short-term licence agreements

Some properties are available on flexible, short-term licence agreements.

A typical licence agreement allows you to rent the premises for minimal up front costs.

Deposit

Typically, a refundable deposit equal to one or two months' rent.

Repairs

Although you must keep the premises in good order, you are not responsible for structural repairs.

Check your rental agreement

If you decide to rent premises, it's important to check exactly what the agreement says.

If you are in any doubt, you should take legal advice.

You should also be aware that you still have general legal responsibilities, such as looking after the health and safety of employees and visitors to your premises.

These responsibilities may be shared with the landlord.

Most small businesses do not have the capital available to purchase their premises outright.

Even if you can borrow to finance the purchase, you may feel that you have better uses for your capital.

You may be able to claim capital allowances towards the cost of renovating or converting your business premises.

Legal advice is strongly recommended if you are buying premises. You'll also need to be aware of your legal obligations.

You'll need to make sure that the premises meet health and safety standards.

Advantages

If you do choose to buy, it can have several advantages:

• Have control of your own premises and stay there as long as you like
• Choose to occupy the premises yourself, rent them to someone else, or sell them
• Your costs are relatively fixed, particularly if you have a fixed-rate mortgage, whereas rents can increase significantly over time
• Make alterations to the premises to suit yourself - subject to legal restrictions
• Over the long term, the value of the property may rise

Disadvantages

• Buying property is an expensive and often time-consuming process, involving significant professional fees and stamp duty
• You'll be responsible for all the maintenance and repairs
• If your needs change, selling the property can be difficult and expensive, and you might find that the value has fallen

If you have the choice, working from home may be a much better option than renting or buying business premises.

It's a common choice for people who just need a small office, or who spend most of their time working on client premises.

Working from home may not be an option if it significantly changes the use of the building, or affects your local area, e.g. if you have lots of visitors.

If you rent your home, your licence or lease may carry restrictions on using it for business purposes.

Creating a list of what you need can help you decide whether working from home is a possibility.

Planning the home office

Practical issues you need to think about include properly equipping your workspace.

If you work at a desk you need a comfortable workstation.

You should consider:

• any potential hazards to yourself, workers, visitors and other members of your household
• how to reduce the risk of accidental damage to your work or equipment

Separate your work and home life

You also need to think about how to separate your work and home life. It helps if you can avoid being disturbed when you are working.

You also want to be able to relax during your time off without being interrupted by work.

Financial and legal issues

Working from home can have important consequences for your mortgage, insurance and tax position.

For example, your mortgage might not allow you to use your home for working, and your insurance might be invalidated if you do.

There are also legal considerations, you might need planning permission, or you may become liable to business rates.

Health and safety

Even if you just have a small home office, or work on client premises, you'll need to think about health and safety.

You should carry out a health and safety risk assessment, taking into account the kind of work you do and the risks to other people.

If you own or occupy business premises, you need to understand the legal obligations and restrictions that affect you.

For example:

• The premises must have planning permission that allows them to be used for your type of business
• You must comply with building, fire, and health and safety regulations
• Stamp duty is payable on commercial leases and you are likely to be liable for business rates, though in rented premises these may be paid by the landlord
• You are responsible for the health and safety of employees and visitors
• You also need to provide a suitable working environment
• If you provide goods or services to the public, you must take reasonable steps to make your premises accessible
• You need to comply with the terms of any lease or licence agreement
• For some businesses, you may require a licence to operate or to sell certain products
• There may be restrictions on times when deliveries are allowed, noise and pollution levels, and how you or your customers dispose of waste.

Licensed or leased premises

In licensed or leased premises, responsibilities are shared between the landlord and the tenant.

Whatever premises you choose, you need to make sure that you are properly insured.

If you are in any doubt about your legal obligations, you should take advice from a business adviser or solicitor.  

It's worth starting by drawing up a specification or 'spec', clearly setting out your requirements.

Distinguish between what is essential and what is desirable.

You can then circulate this spec to likely sources of premises such as commercial agents who act as estate agents for commercial premises.

Local surveyors who can assess the condition and value of premises may know of suitable properties in the area.

Search for premises on the Invest in South Tyneside: Search for Premises.

Check any potential premises against your spec and eliminate any that don't at least meet all your essential requirements.

Then you can draw up a shortlist of properties to visit.

For more information on premises, see business property.

At this stage, you may want to involve professional advisers.

For example, a surveyor can assess the condition of premises and give you an idea of their value.