How to Purchase a Property Licence
We look at why a flexible occupancy might be the right choice for you and how to go about finding and purchasing one for your business
If your business is in search of premises that will be quick to occupy, a property license might be your best option as they are cheaper than leases, and allow you to move in more quickly and easily. They also offer you the flexibility to change your premises if you experience a rapid growth, or a change in your circumstances.
This guide will help you understand the difference between a license and a lease, check the license agreement and anticipate potential difficulties.
What is the difference between a license and a lease?
There are a number of differences that a business owner should be aware of. One of the main ones is that licenses cover short periods; leases longer ones. Licenses are valid for up to two years, but leases may run for significantly longer.
Other measures businesses should be aware of are that licenses are offered on a relatively limited range of properties so make sure to consult your local council or enterprise agency for a list of properties available both to license and to lease. Another big difference is that licenses can be terminated early, both the landlord and the occupier commonly have the right to terminate the license with a month’s notice.
Licenses may not be renewed and licenses do not require large upfront payments. If the landlord terminated your license, you have no right to renew it – landlords tend to be keen on licenses for this reason. And solicitor’s fees and any required deposits are typically low with licences properties.
Finally licenses offer you chances to expand easily. If you are in a serviced office block, it can be easy to rent extra space for short periods and projects. Licenses may include with offers of additional office services/equipment and paying for temporary use of equipment/services will be a cheaper way of operating in the short-term.
What should a license agreement consist of?
Your license is a legal agreement between the landlord and yourself. Make sure it is written clearly, and that you study it in detail before signing.
Make sure to check the landlord’s details are correct, whether they own the property and check if have the legal right to offer a license. And also check your own details are correct on the agreement i.e. your name, address, if your company is limited, and that the license is made out in your company’s name rather than your own.
Another factor to take into account are what free services it covers, such as heating, water, electricity, air conditioning, use of toilets, kitchens, and receptions. Also check what additional services/facilities it covers, such as office services, furniture, telephone lines, internet access, and parking spaces.
Finally, check anything else it covers: additional clauses will specify what the landlord is liable for in case of accidents, or the breakdown of machinery. It will also specify your rights and the terms to which you and your employees must conform.
What cost considerations are there when purchasing a license?
One of the biggest costs a business owner needs to consider is the amount of the monthly license fee/rent. Is it fixed, or can the landlord increase it? Though the short period of most licenses belies cost increases, some agreement allow the landlord to increase the fee/rent after a certain period.
Businesses must also take into account their set-up costs and the VAT charge in the rent. This largely depends on the landlord’s financial situation and the building being rented. Landlords can charge VAT at a future date, even if the contract you sign does not stipulate it.
Finally the charges for facilities and services, identify the minimum charge for any amenity you use, and how charges for utility services are measures.
What potential difficulties should I check for before purchasing a license?
Particular problems regularly surface when operating in a licensed property but there are a number of ways that you can anticipate these. One way is to watch out for limited access; check the times that you are allowed to access the premises – if you need to work in the evenings/at weekends then limited access will be a problem.
Also check for working restrictions, such as limits on noises, smells and waste you might produce, and for those on changes you might wish to make to the property (changing the exterior signage, for instance).
Finally if you are sharing the business, check that your neighbours are suitable and that you don’t pose a potential nuisance to each-other.
What potential disagreements might you encounter with your landlord?
You should also anticipate any potential causes of discord between you and your landlord. Investigate your deposit – check when it will be refunded, what deductions the landlord is permitted to make, and what interest you are entitled to.
Make sure you know the get-out terms. Beware of contracts with a long fixed term and no get-out clauses. Study all clauses relating to the contract carefully – landlords may include clauses that invalidate your break clause if not followed.
And finally investigate the landlord’s reputation. Ask other licensees about their past performance, and heed any warnings you are given. A bad landlord can cause any number of problems for you and your business.
A property licence could be the perfect option if your business is in the process of growing/changing as it’s more flexible and will enable you to move into bigger premises when you grow, however it’s important that business owners understand the full terms of the agreement before accepting.
Looking for a more permanent residence? Check out our guide to buying a business premises here.