What You Need to Know about Leasing a Shop

Guest post by Judith Long

Taking on a business lease can be one of the most significant financial commitments that your business will make.  It is important for a tenant to be aware of the key provisions of its business lease so that it can check what the respective rights and obligations of the business and the landlord are and be aware of the procedures to follow in case there is a problem.

What’s in a Shop Lease?

The lease will normally include the following:

  • Details of the premises.
  • The term of the lease – this will usually be 3 or 5 years or a multiple thereof.
  • Whether the lease is renewable at the end of the term.
  • Whether lease can be assigned during the term together with any conditions.
  • Whether part of the premises can be sublet.
  • The amount of the rent, including details of any rent reviews.
  • The amount and the terms of any rent deposit.
  • Whether a personal guarantee is required.
  • Details of any works that will be the landlord’s responsibility during the tenancy.
  • Details of any service or other charges that may be payable to the landlord during the tenancy.
  • Details of any works that will be the tenant’s responsibility during the tenancy.
  • Details of remedial work that will be required at the termination of the lease.
Check your shop lease before signing to avoid nasty surprises later on!

Check your shop lease before signing, to avoid nasty surprises later on

Things to Consider when Leasing a Shop

The matters set out below are the sort of things you may need to think carefully about and to negotiate with the landlord before agreeing to the lease.

a.      Check the length of the lease.  The tenant should know when the term will end and whether it can be terminated earlier by either party.  The right to terminate early is usually referred to as a break clause.  Tenant break clauses are commonly linked to rent reviews so that, if the rent is likely to be unacceptable to the tenant, it can terminate the lease and limit its financial responsibilities.

b.      Check the position on security of tenure.  Business tenants generally have the right to renew their lease at the end of the contractual term (subject to certain exceptions).  Note, however, that the lease can be contracted out of the security of tenure provisions, in which case there will be no right of renewal at the end of the term and the property must be vacated.

c.      If the lease provides for a rent review, consider whether this should be a simple inflation-linked increase or linked to comparable premises in the open market.

d.      Are you required to give a rent deposit or a personal guarantee?  If so, think carefully about the impact on cash flow and personal liability as a guarantor.  Many start-up businesses prefer to take a lease in the name of a company with a cash rent deposit.

e.      If giving a rent deposit, consider whether it should be released if you prove to be a good tenant and your accounts show that your business is on a sound footing.

f.       The lease is likely to contain a number of restrictions in connection with assignment and sub-letting.  These provisions should be carefully considered.

g.      If you intend to carry out work to the premises, it is best to agree these at the outset and document them as part of the initial deal or you may need to obtain landlord’s permission incurring additional costs and delays.

h.      Even if the premises aren’t in a good state of repair at the beginning of the lease, the repair clause might require you to hand them back to the landlord in a good state of repair. Therefore it is wise to ask your landlord for your repairing obligations to be limited to the current state of the premises recorded in a detailed Schedule of Condition supported by photographs.

i.       Find out what your business rates liability will be.  Check whether the premises are separately rated.

j.       If the premises are part of a larger building, check the service charge accounts for at least the previous 3 years and try to negotiate a cap on the service charge for at least part of the term.

k.      Check whether the premises have their own meters and mains supplies or are these located in a part of the building you can’t reach?

l.       Would you require parking facilities or 24-hour access?

Please note that the above are just some of the matters which you need to consider before leasing a shop and this guide is not intended to be exhaustive.  Landlord and tenant law is a complex area of law and specialist legal advice is always recommended before entering into a lease whether you are a landlord or a tenant.

 

About Judith Long

Judith Long, property lawyer

Judith Long, commercial and property lawyer

Judith is a solicitor with her own practice and her specialist skills include all aspects of commercial property law and business law. With nearly 30 years experience in the law, she has worked in industry as well as private practice.

Her practice was formed in 1997 and she provides specialist business legal services to public and private institutions and individuals.  For more information see www.judithmlongsolicitors.co.uk

What You Need to Know About Confidentiality Agreements

There are many reasons why you may need a confidentiality agreement or non-disclosure agreement (NDA) and they include the following:

  • You have an idea for a new invention or a new website business and you need support from other people in developing the concept, but without the risk they will take the idea and use it themselves
  • You are taking on someone to help with your business and you want to ensure that they keep your trade secrets, customer lists etc., confidential
  • You are thinking of selling your company and you need to disclose trading details to the potential buyer before you know if he will go ahead with the purchase
  • You want to exchange information and ideas with another business with the aim of setting up a new joint venture or jointly developing a new product.
Confidentiality Agreements needn't be fierce to be effective

Confidentiality Agreements needn’t be fierce to be effective!

Because of the need to protect your ideas when embarking on a negotiation, the first agreement you will sign with your (potential) new business partner is likely to be a confidentiality agreement.

Well-established companies are used to this so, if you are an individual with a good idea but are nervous about suggesting this to a larger organisation, there is no need to be – they should understand the reasons and be willing to comply with your request.  Be wary of those who do not want to sign and simply tell you to trust them!

Although the style and content of each NDA will vary, depending on the circumstances, there are some common features in most of them.

The agreement will quite often be in the form of a letter addressed by one party to the other in which case the recipient should be asked to accept the terms set out by signing and returning a copy to the sender: only when the letter is accepted (without any open issues or qualifications) will the agreement be effective.

Alternatively the agreement may  be more formal, setting out the name and address of the parties and the terms agreed between them and signed by both parties.

The agreement will identify the information and data that is covered by the confidentiality obligations.  Quite often the wording will be generic rather than specific, and refer to the ideas, designs, know-how and products and related information that are to be disclosed by one party to the other.

There will be a time period in which the confidentiality obligations continue.  There are often two elements to this.  Firstly, the agreement will usually have a fixed period in which the parties will discuss the proposed project and, if they do not decide to go ahead after that period, the agreement will come to an end.  However, the end of the discussion period will not be the end of the confidentiality obligations and the agreement will normally provide for those obligations to continue for a specified time, say 5 years.

When the fixed period ends, the agreement should provide for all confidential information and data provided by each party to the other to be returned or destroyed.

During the agreement there may be restrictions on the use of information – e.g. that it can only be accessed by those in the recipient company who need to know about it because they are involved in the discussions.  This may be coupled with a requirement that all those individuals are themselves subject to confidentiality obligations.

The agreement will usually contain some exclusions:  information that is already publicly available or obtained by the recipient awfully from another source will not be covered by the agreement.

When the arrangements are such that one party introduces the other to third parties that might be involved in the project, it is sensible to have a clause that prohibits that other party from entering into any direct dealing with those third parties for a similar project before some time has passed after the negotiations have come to an end.

The agreement may contain a requirement that a party that breaches the agreement will indemnify the other against all loss and damage it suffers from the unauthorised disclosure. And there may be a statement that as damages may not be an adequate remedy, the innocent party will be entitled to obtain a court order prohibiting disclosure.

ContractStore has a number of relevant agreements:

  • If you run a company that is interested in developing an idea or product that someone has brought to you and that person needs to be protected by a confidentiality agreement, we have a letter form that should suffice: http://www.contractstore.com/A119-confidentiality

For the full list: http://www.contractstore.com/confidentiality-and-non-disclosure-agreements

What You Need to Know About Shareholder Agreements

If you are thinking of setting up a Company with Shareholders, be sure to have all rights and responsibilities agreed in writing.  A good contract will protect your interests and help you avoid disputes or crises.

You will need an agreement which sets out the basis on which shareholders will own, fund and manage the business and which will have a procedure for dealing with the sale of shares and for resolving differences of opinion.

Don't play Russian Roulette with your business - get everything agreed in writing

Don’t play Russian Roulette with your business – get everything agreed in writing

When a Limited Company is formed in the UK, it will usually have the model Articles of Association that are available on the Companies House website.  The Articles contain the constitution of the company – but for most people setting up a company this is not enough.

A shareholders agreement in the UK is a private contract and, unlike the Articles of Association, it is not available for anyone to access at Companies House.

Sometimes a shareholders agreement will be signed before the company is formed, but it can also come later.

Key Points to Look For in a Shareholders Agreement:

  • Parties to the Agreement

In a private company with between two and ten shareholders, it is usual for all of them to be parties to the agreement.  But this is not essential.

If, for example there are three people each with 25% of the shares and 10 other shareholders with only a small nominal shareholding, the agreement might be made between only the three main shareholders.

  •  Capital, Shares and Funding

The Agreement will normally set out the number of shares to be taken up by each shareholder, the amount payable, and whether the shares carry any special voting rights.  If shares are to be issued in return for non-cash assets – e.g. technical know-how – this will be specified.

The agreement may also stipulate that additional funding that is needed will be provided by loans from shareholders proportionate to their shareholdings; or else that the company will seek funding form an external source such as a bank.

In order to have some certainty, sometimes a business plan indicating what capital will be required, who will contribute it, and when it will be required, will be added to the shareholders’ agreement for a new company.

  • Management

Management of a company is generally undertaken through the board of directors; it is therefore important that the shareholders agree how many directors there are to be, who the first directors are, how they are to be appointed and removed and whether the holders of different classes of shares have any particular power to appoint them.

It is usual for each of the principal shareholders to have the right to appoint at least one director to the board and, where a shareholder is an individual he or she may also be a director.

Once appointed, directors may be given authority to determine how often they meet, the quorum for meetings, how their decisions are made and other matters relating to matters such as the conduct of the meetings.

Alternatively, the shareholders may wish to decide these matters themselves and set out the rules in the shareholders’ agreement.  This is especially likely to be the case when, for example, there is one major shareholder who wants to be sure that only resolutions that have his vote will be passed by the board or at a shareholders’ meeting.

Another aspect of management which the shareholders should address at the outset is the extent of the directors’ powers; the shareholders may wish to reserve certain important matters to a decision of the shareholders in general meeting of the Company.

These reserved matters may cover, for example:

  • the issue of new shares,
  • borrowing by the company above agreed limits
  • any change in the nature of the company’s business,
  • capital expenditure above an agreed amount,
  • hiring and firing of senior staff
  • joint ventures with other companies.

Specific day to day management issues may also be covered – especially if there are some special arrangements, for example where one of the shareholders provides office premises for the company.

  • Transfer of Shares

The shareholders will usually want to prevent other shareholders from disposing of their shares to third parties without having first offered them to existing shareholders.  This is normally accompanied by wording that requires the shares to be valued by an independent accountant if the sale price is not agreed.

The shareholders may also wish to provide that in certain circumstances, e.g. the death or permanent incapacity of a shareholder, that shareholder’s shares are to be offered to the other shareholders.   In the UK, it is usual for tax reasons to give shareholders the option, but not the obligation, to acquire shares of a deceased shareholder.

  • Dividend Policy

Shareholders often provide in the shareholders’ Agreement for:

  • the means of calculating net profits;
  • a percentage of the net profits that must be distributed annually;
  • any restrictions on distribution of net profits – e.g. no distribution until certain loans have been repaid.
  • Confidentiality

The agreement will usually contain a restriction on any shareholder disclosing confidential information about the company to outsiders, not only during the agreement but also after it comes to an end.

  • Default

If a shareholder become bankrupt or commits some serious breach , the agreement will usually provide for him/her to be bought out at a price fixed by the agreement.   If a shareholder who is forced out under this clause is a director of the Company, he should also be required to resign as a director.

  • Restriction on Competition

It is common practice to prevent shareholders from having an interest in a competing business and to prevent any shareholder who sells his shares to set up in competition or poach any of the company’s staff for a specified period.

  • Management Disputes

When, on issues of importance, the shareholders (either through their directors on the board or in general meeting) cannot agree, what occurs is what is known as a deadlock.  It is often agreed by the shareholders at the outset what will be done in such a situation.

A solution that is often adopted is for a shareholder to offer to sell his shares or purchase the other shareholders’ shares at a particular price.   These solutions are sometimes known as “Russian Roulette” or “Texas Shootout” provisions.

ContractStore has several useful downloads for shareholders:

Do You Need a Partnership Agreement?

If you are setting up a business, you may be wondering if you should have a Partnership Agreement, and what it would include.

The answer to this is that without it, there can be uncertainties as to the relationship between the partners and how the partnership should be run. For example, in the absence of a partnership agreement, on the death of a partner, the partnership has to be dissolved. Unless there are only two partners, this might not be in the interests of the surviving partners who wish to keep the partnership going.

Similarly, in the absence of any agreement to the contrary, the partners have the right to share equally in the capital and profits of the business.

Problems which can be encountered with the general law can be avoided by a properly drafted partnership Agreement, which can set out clear rules concerning such matters as capital and profit shares, drawings on account of profit, management and decision making, permitted partnership expenses, retirement and expulsion or death of a partner (and the financial consequences of retirement, death or expulsion).

Definition of Partnership

Under the English Partnership Act 1890 (“PA”) partnership is defined as ‘the relation that subsists between persons carrying on a business in common with a view to profit’.

Formalities

There are no specific legal requirements that govern the formation of a partnership. The PA governs the relationship unless there is a partnership agreement.

Partnership is a private matter and there is no public register that contains information concerning partnerships. (This is not true of limited liability partnerships which were introduced in 2002 in the UK).

Legal Status of Partnerships

A partnership does not have a separate legal personality apart from its members in a way that a limited company does. As a consequence, the partners are jointly and severally liable for the obligations of the partnership i.e. each partner can be sued for the full amount of any liability of the partnership. There is no limit on liability.

Duties of Partners

These arise from the partnership agreement, where there is one. In addition, partners are agents of the firm and their other partners. They also have a fiduciary relationship to each other – e.g. a duty to account and disclose information concerning their activities in relation to the partnership.

Authority of Partners

Each partner has the power to bind his partners and make them liable on business transactions which are carried out in the name of the partnership. (This power can be limited internally but if the internal agreement is breached, the partnership might still have a liability to a third party who entered into a contract in the belief that he was contracting with the partnership).

Partnership Contracts

Partnership Agreement for Two Partners

Partnership Agreement for Three Partners

Partnership Agreement for Four or Five Partners

Do It Yourself: Terms & Conditions e-kit shows you how

Business Terms & Conditions e-kit

Business Terms & Conditions e-kit

ContractStore has collaborated with Lawpack to launch a new guide: the Business Terms and Conditions e-kit.

Available to download online as an e-kit, this 50 page book includes guidance on the key terms that a business should include in its Terms of Business including topics such as

  • price and payment
  • delivery
  • recourse for faulty goods
  • force majeure
  • limits of liability
  • termination.

There is also advice on debt recovery and a range of other subjects including how to get the best out of your lawyer.

The e-kit contains a number of sample documents including Terms & Conditions for supplying goods and services.

Written by three solicitors who specialize in commercial law, including ContractStore’s founder, Giles Dixon, this invaluable guide is priced at £19.99 (£17.50 plus VAT).

The Business Terms and Conditions e-kit is available online at http://www.contractstore.com/business-terms-and-conditions-ekit

5 Partnership Considerations to Consider

There are times when it’s best to go solo and others when you need a team effort to survive. When you’re part of a team, you need to know how to be a good team player, since a team works best when each of the players plays to his strength and complements the strengths of his teammates. When it comes to business partnerships, you’re on a sticky wicket because there are huge sums of money and large amounts of efforts involved. In order to establish a partnership that stands the test of time, you need to consider the following aspects:

  • The best partners complement each other: The most compatible partners are those who have the same goal and different strengths and expertise in various areas that are needed to achieve the goal. It’s important that your vision for the company be the same – if one person wants to run your organization as a social enterprise while the other wants to rake in the profits, you’re going to be pulling one horse in two different directions.
  • Clear cut responsibilities help avoid the blame game: A partnership in which clear cut responsibilities are defined help pinpoint the blame when something does go wrong instead of each blaming the other for the fiasco. It also paves the way for proactive measures to be taken so that the problem can be rectified.
  • Money matters destroy even the strongest of friendships: If you’re going into partnership with a friend or a relative, be warned that money is stronger than blood or friendship. If the partnership does not survive, then you can expect your personal relationship to be strained and affected too, unless both of you are really mature and are able to separate the business aspect of your relationship from the personal side.
  • It’s best to have a written agreement and an exit strategy: Even the best of friends can turn into the worst of enemies, so don’t depend on mere words, even though they were spoken in good faith, to keep your partnership secure. Draw up a written agreement that delineates each of your responsibilities, profit sharing arrangements, and how your assets will be split in case you decide to call it quits.
  • Limiting the amount of liability helps in times of trouble: A limited partnership helps you safeguard yourself in case your partner uses your common business to promise things that he or she is not allowed to. It limits your liability in the damage suit that may follow.

ContractStore has several documents to help you set up a solid basis for your partnership, including
A148 Partnership Agreement
A107 Shareholders Agreement.
A complete range of partnership documents is available at http://www.contractstore.com/partnership-and-shareholder-agreements

You can read here a case study about ContractStore customer Luke Hutchison of Southern Solar, who set up his business partnership using one of our documents.

ContractStore helps get new business off to a Flying Start

Flying Tots Childcare ServiceOne of our recent customers contacted us for help while creating a bespoke childcare company, Flying Tots Ltd, predominantly to care for the children of airline staff. After carefully researching crew and pilots’ needs over the past year, Sharon Bastien found that airline staff lose out on work due to a lack of childcare. Sharon also discovered that because airline crew work ‘irregular hours’ from day-to-day, they could not be accommodated by most agencies.

So the enterprising Ms Bastien designed a unique company, employing professional, flexible nannies to care for children of airline staff. The company will also serve high-flying career professionals whose work demands ‘out of the norm’ or long hours. Clients use the service on an ‘ad hoc’ basis, as and when needed. The considerable press coverage on the business has been very positive and has generated many enquiries.

Sharon got in touch to share her story about how ContractStore has helped her get the business off the ground:

“I found ContractStore’s website in 2008 and I used it to prepare two contracts, one for the clients who required a nanny, and one for the nannies I employ.  I did not anticipate that these contracts would require so many clauses and details, of which I was not even aware. However,  I was able to obtain two excellent contracts, perfect for the job that meets all the legal obligations and were great value.

Flying Tots ChildCare Service for high flyers“I am very passionate about excellent customer service inside and outside my business.  I felt I was always receiving  undivided attention – excellent customer service in fact. Our business relationship has grown and I can recommend anyone to use ContractStore .”
 
“The specialist services we provide are for working parents, whose job requires them to work a shift pattern. These are parents are experiencing great difficulty with finding childcare when having to attend work, for long periods at a time. Flying Tots, now with the introduction of our service to high career workers and business professionals ‘takes off’ to a flying start.”

Visit the Flying Tots website:www.flyingtots.co.uk

OneIS Happy

oneis.co.uk

oneis.co.uk

Jennifer Smith, co-founder of OneIS (www.oneis.co.uk) contacted ContractStore after hearing about us in Delia Venables’ Internet Newsletter for Lawyers.

OneIS provides a secure, online space for small organisations to store and share all their information. In effect it’s like having an intranet or shared network, without the expense and IT hassle of running your own servers. Clients pay a monthly subscription to store their documents and other information in the application, hosted securely by OneIS.

Jennifer sought a contract giving the terms of service for providing the hosted information management system.

Jennifer and Ben from OneISThis type of hosted service is becoming increasingly popular, so we were happy to hear from Jennifer and produce a template contract for the catalogue.

Jennifer, who describes herself as being “obsessed with efficiency and improving business through better information management”, told us:

“We needed terms of service for OneIS but I didn’t want to spend the £850+ I was quoted by traditional law firms. So I approached Giles at Contract Store who sorted us out very promptly and professionally for a fraction of the price being quoted by others.

“I’m so pleased to have found your service. I thought getting our terms written would be a horribly lengthy and expensive process, but it has been really quick and easy.

“I have been recommending ContractStore to other startup companies – all of whom would benefit from the cost-effective, no hassle legal services you provide.”

How to Handle Your Lawyer

Negotiate successful deals by making sure the legal aspects are right

As a former City lawyer I would like to see a shake-up in some legal industry charging systems and I would like to offer you some useful tips on how to get the most out of your lawyer.

This follows a number of recently published reports detailing insensitive legal fees hikes, adding to the burden faced by ‘Credit Crunch’ hit businesses.

Recent research into UK firms, undertaken by my business ContractStore.com, shows that approximately 1 in 3 businesses ‘make up’ their own legal contracts.

Most of the recent criticism of legal fees has come from larger companies who use city law firms where the charging rates of a partner can be as high as £700 an hour. If the bigger clients are suffering, it is that much worse for smaller businesses, especially start-ups.  

Many small firms are simply out-priced by the fees charged by lawyers; preparing a simple contract involves using a precedent and is hardly rocket science, but we had one customer recently who had been quoted £7,000 for two sets of terms and conditions for a start-up business by a small firm of solicitors in the country.This situation is ludicrous! 

Businesses need the protection of properly drafted contracts and while most lawyers have a fairer charging system than this example, it is important to price work that takes into account the client’s ability to pay. Give a low cost service to a new business and it could be a client for the next 20 years.

The legal profession need to “get real” with their charging structures.  As a recent report pointed out, hourly charges do not necessarily make for an efficient billing system – associates in law firms are under pressure to bill as many hours as possible and there is always a risk of them putting down too much time, especially when there is less work around for those affected by the coming recession.

Given the sophisticated billing systems used by many firms, it should be quite easy to work out a fixed fee for most routine transactions. And for long-running matters where a team is involved over several weeks, it is questionable whether fees shoyuld be charged on an hourly basis.

Clients need to do their bit to keep fees within reasonable limits. After all, there is nothing to stop them shopping around for a better deal and to organise the work so they do not give their lawyers tasks that they could do in-house – e.g. on a due diligence exercise when buying a company.

How to get the most out of your lawyer

When approaching a law firm for a quote, you need to find out who will be doing the work: the bigger the firm, the more lawyers that are likely to be put on the team and with increasing specialization, this can involve a lot of duplication and overlapping of effort.

The smaller the firm, the smaller the team is a rough rule of thumb. In other words, a 20 partner practice is likely to be more cost effective than one of the law factories and you will also get more partner involvement, especially with a smaller assistant-partner ratio.

Large practices have a lot to offer on mega projects but when it comes to more run-of the mill matters, with three or four lawyers all reading the same documents, more than one clock is ticking and the costs mount up very fast.

Tips for how to handle your lawyer include:

*  Select a firm that handles the type of work you want
*  Be very clear on what you want from your lawyers – write a brief and put together the relevant papers in a sensible order – don’t give them a box of files and then complain if it takes your solicitor a week to review everything
*  If you want a contract drafted, do some preliminary work – websites like ContractStore.com offer free checklists and low cost templates: it will be cheaper to have a lawyer tweak a template provided by the client  than draft a contract from scratch (even though the lawyer will be using her own template)
*  Find out how the work is to be handled – the number and skills of lawyers concerned
*  Get a firm price and timetable: a fixed fee can be safer than hourly rates or else get a maximum limit on the hourly charges
*  Don’t feel intimidated by the surroundings – solicitors negotiate just like other trades.

Giles set up ContractStore.com to assist businesses to put legally binding, professionally-drafted contracts in place for a fraction of the cost that law firms normally charge.

Giles Dixon
Managing Director
www.contractstore.com