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New yard or new warehouse: know the law

  • 16 January 2014
  • By Justin Stanton

Before entering into any lease arrangement for land or buildings, whether it be a yard or a  warehouse, the potential tenant needs to give careful consideration to a number of issues both legal and practical, writes Angela Bhaseen, partner, real estate, at DWF.

Heads of terms are key to any lease arrangement and should be agreed between the parties, or their respective surveyors, to assist and simplify the lease negotiation process before solicitors are instructed.

The heads should, ideally, cover the following main terms for the lease of a new yard or warehouse:

  • Premises: a detailed description of the premises and a plan showing the area to be demised. A scaled plan, to be produced by the landlord, will be required if the lease is for seven years or more, because the lease will need to be registered at the Land Registry. It is good practice for scaled plans to be used in any event, regardless of the term to be granted.
  • Term: the term of the lease should be stated and it is advisable to have a break clause to allow flexibility. In this climate, a term of 10 years with a five-year tenant break is usual, but this will be subject to negotiation between theparties.
  • Break clause: you should ensure that if there is to be a break in the lease, it should be unconditional. A break that is conditional on the performance of the tenant lease covenants, and any other conditions, should be avoided because it might mean the break cannot be exercised successfully if the tenant falls foul of those conditions.
  • Annual rent: depending on the nature of the premises and whether they are stand-alone or form part of an estate, consideration should be made as to whether the rent is inclusive of insurance and service charge. Annual rent is usually payable quarterly, but, for cashflow reasons, the haulier might prefer monthly rents. If agreed, this will be stated in the lease.
  • Rent review: the parties should agree on how and when the rent is to be reviewed. Is it to be an upwards-only review based on the open market rent or subject to retail price index increases in the fifth year of the term? The haulier’s surveyor will be able to advise on the form of review taking into account the demand and location of the premises. A stepped rent is another option to be considered.
  • User: your solicitor needs to understand how you wish to use the premises and whether that use is sufficiently covered in the lease and the planning permission for the site. During negotiations, operators should be advised by their solicitor of any onerous conditions attached to any planning permissions because this might affect the operator’s day-to-day operations from the premises. Operators should inform their solicitor if 24/7 access is required as this may be prevented under the lease or the planning permission.
  • Repair: if the premises are new it is likely that the repairing obligations in the lease will require operators to keep them in good and substantial repair and they will not be subject to a schedule of condition. A survey should be carried out by the haulier before occupation so the state of the premises is known and there are no hidden surprises because, at the end of the term, the premises will need to be returned in good and substantial repair, and decorated.
  • Service charge: if the yard or warehouse is not standalone and forms part of an estate then a service charge is likely to be payable. Operators should consider as part of the negotiations a request for the service charge to be capped annually so that the costs can be budgeted for.
  • Alterations: do you intend to carry out any structural alterations or extensions to the warehouse? If you do, then the lease should not prevent you doing this. Such alterations will be subject to the landlord’s prior consent being obtained. The lease will cover various conditions that you will need to comply with during the carrying out of any alterations.
  • Alienation: the lease needs to be flexible in allowing you to deal with the premises by way of assignment, underletting or charging of the whole with prior consent. Any onerous conditions attached to assignments or underlettings should be avoided. An authorised guarantee agreement is likely to be requested on an assignment and the effect of this should be discussed with the haulier before the lease is entered into. To allow flexibility, and depending on the nature of the operator’s business, the lease should allow group company sharing.
  • Warranties: if the yard or warehouse is new, warranties should be provided to the haulier from the professional team involved to cover any defects in the works carried out. The warranties may also cover any environmental remediation works that may have been carried out on the site.
  • Excluded lease: as a business tenant, operators might be looking to remain in occupation of the premises at the end of the term and therefore the lease should not be excluded from the security of tenure provisions of the Landlord and Tenant Act 1954. If it is, then the operator would need to vacate at the end of the term. The hauliershould discuss his requirements with his surveyor.
  • Liabilities: operators need to have a fair idea at the outset of what costs will be incurred under the lease and, as part of the due diligence process, some of this information will be available to their solicitor. Estimates of service charges and insurance costs, if these do not form part of the annual rent, should be provided if possible at heads of term stage. Operators will also have to pay rates and other outgoings relating to the premises so should factor in all costs before entering into the lease, including VAT if this is payable on the annual rent.
  • Stamp Duty/Land Tax/Land Registry fees: the term of years granted and annual rent payable under the lease will affect the stamp duty land tax payable. It is a compulsory tax to pay on the grant of a lease, and operators should request an indication of the tax liability from their solicitor at heads of term stage. If the lease needs to be registered, a fee will be payable for this which, again, operators should be made aware of before entering into the lease.

Practical considerations

  • Ensure there is sufficient access for vehicles to and from premises for the time periods required for the business and over the adjoining highways.
  • If the premises are in a residential area, consideration needs to be given to noise and pollution to maintain good relations with residents. Representations can be made by local residents.
  • Adequate security arrangements should be in place, especially if vehicles contain goods overnight.
  • If the premises are to be used as an operating centre, an operator’s licence or operating centre needs to be applied for and the premises be advertised locally in the usual way.
  • For more information, contact Angela Bhaseen, partner, real estate, at DWF, on 0845 165 5334 or Vikki Woodfine, head of road haulage and logistics, at DWF, on 0161 603 5060.
  • Commercial Motor’s Compliance and Best Practice Bulletin is sponsored by Tachodisc. To sign up to receive the monthly bulletin, go to the Compliance homepage.

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Article source: http://www.commercialmotor.com:80/latest-news/new-yard-or-new-warehouse-know-the-law