The Covid-19 pandemic has affected many business’ cash flows and we are seeing more and more businesses think creatively about how their business premises can work for them. Often a commercial property is a business’ most valuable asset and in times like these – that asset needs to be maximised! Here are a few ideas to make your commercial property work for you…
A commercial property is often regarded as very good security for commercial loans and overdrafts. If your business premises has little or no existing borrowing – taking out a new loan and securing it against your premises may be an option.
The bank will require a valuation of the property and legal due diligence to be carried out. The bank will act like they are buying the property because if the loan is ever default on – they can take possession of the property and sell it to recover all sums owed.
If your commercial property is too big – perhaps because of the Covid-19 pandemic you have more home workers – you could think about sharing your space with another business. Sharing space often helps with paying rent and other outgoings, such as business rates, utilities and insurance costs.
Any arrangement to share occupation should be documented and we would usually advise that a formal lease is put in place so that both parties know their respective rights and obligations. If you are thinking of granting a lease of part of a building – you need to think about what items the occupier will need the use of i.e. parking spaces, toilets, kitchen facilities etc.
If your commercial property is held under a lease, you should check the terms of your lease to check whether subletting is allowed. If it is allowed, you may need to obtain your landlord’s prior written consent before granting a sub-lease.
- Sale and Leaseback
We have seen the high street retailer, Next recently explore this option. Next has owned its large headquarters at Enderby for many years and as a way of producing revenue – it has floated the idea of selling its freehold to an investor, in exchange for Next agreeing to take a lease of the site.
The purchase of a freehold with a sitting tenant (of good covenant strength) on a long lease would be attractive to an investor and it would enable the selling to company to generate cash but remain in its premises.
- Pension scheme transfer
If you or your company have a pension scheme (typically called a SSAS or SIPP) which has cash in it – a commercial property can be sold to the pension scheme (for market value) and a lease granted back to the trading company on completion.
Currently it is tax efficient to own a property in a pension scheme wrapper, so this approach would incur tax savings and generate cash for your business at the same time. There are strict rules about transferring properties to / from pension schemes, so you should consult your scheme’s professional trustee to make sure you do not fall foul of the rules.
For further information on any of the initiatives described above or to discuss your specific commercial premises, please contact our Commercial Property department on 0116 289 7000.
Categorised in: Commercial Property, Covid-19Tags: Commercial Property, Coronavirus, Leases