Your move

If moving house is one of the great stress creators, then imagine how much
more traumatic it is to move office. While your clients may know how to run an
efficient and profitable business, that doesn’t make them experts in property
matters.

This is where accountants can provide the best advice about negotiating the
right lease. This is critical because there are too many struggling businesses
that have failed to recognise the financial risks of relocating. They have taken
on unrealistic long-term obligations and boxed themselves into a corner in terms
of future flexibility.

The issue of rent deposits and personal guarantees demanded by landlords must
be approached with care. Clients need to be wary of tying up working capital in
deposits. If it has to be cash, then the mechanism for recovering this at the
end of the tenure must be clearly understood.

Personal guarantees should only be given as a last resort. Getting them
released can be hard and they negate the benefit of running a business under the
protection of a limited company. Where possible, providing a bank guarantee is a
better alternative.

Circumstances can change quickly, especially for small companies, so it is
important to secure a break clause in the lease. This gives you the option of
moving out earlier if space requirements change.

The financial burden of maintaining two sets of premises can easily push
companies over the edge. In one case we handled, a firm needed to downsize to
smaller offices, but was faced with rent obligations for 15 years totalling
nearly £2m.

The capital costs of moving premises are always higher than anticipated and
the exercise inevitably disrupts the

day-to-day running of the business. So a rent-free period at the start of the
lease will mitigate the impact on the cash flow. Although landlords may not be
prepared to agree this concession initially, the practice is common and should
be pressed for in negotiations.

Clients also need to be aware of the danger of unexpected costs. Most
property leases leave tenants liable for the cost of reinstating any damage or
alterations to the premises.

It is not uncommon for small businesses to be brought to their knees by
claims of £50,000 or more for damage, some of which had been caused by previous
occupants. This highlights the importance of agreeing and documenting the state
of the premises with the landlord before moving in. It is also a good reason to
use a lawyer, and even a chartered surveyor, particularly when negotiating to
take over an existing lease.

Owner-managers may be reluctant to incur professional costs, but they would
be foolish not to seek legal advice on any property move. Asking a lawyer to
review the lease and assist in the negotiations will save money and hassle in
the long term.

Agreeing to an onerous lease will be catastrophic if nobody can be found to
take over the obligations when the client decides to move. It is essential to
obtain recommendations from others who have been through this process before
hiring a solicitor. A fee basis that keeps the legal costs under control must be
agreed.

There are two final considerations for accountants advising their clients
about moving. If the move is absolutely essential, then take as little extra
space as possible, while allowing some margin for expansion.

Clients also tend to want the best and most prestigious premises, but they
must ask themselves if their business really needs to be in such high-quality
surroundings, or such an expensive location.

Above all, accountants must challenge their clients over whether the move is
really necessary. Can documents or stock be kept off site to free much-needed
storage space? Or can some staff work from home and hot desk when they are
needed in the office? Buying modern space-saving furniture is also an effective
way of fitting in more people.

Relocating a business is such a traumatic event that it should only be
contemplated if it is absolutely unavoidable.

Nick Hood is the senior London partner of Begbies Traynor

Questions for your client

# Does your client need to move, or is there a cheaper and less disruptive
alternative?

# How much space will they need – long-term fixed property costs are bad news
for SMEs

# Does the new accommodation have to be upmarket or in a premium location?

# Can you preserve working capital by giving the lowest possible rent
deposit?

# Clients should avoid personal guarantees – offer a bank guarantee instead
if you can where possible

# Is there a break clause to give the flexibility to move earlier?

# Can you negotiate an initial rent-free period to help cover the capital
costs of the move and mitigate impact on profits?

# Pay attention to dilapidations – use a chartered surveyor and make sure you
document the state of the premises when you move in

# Have you got a lawyer to vet the documentation?