Property: Trading places: life on the shop floor

What to look for in rent agreements if you want to be a retailer

NAPOLEON is supposed to have described the British as a nation of shopkeepers. Many of us have entertained the idea of having a little shop, whether as a serious business venture, an option for semi-retirement, or to specialise in a favourite hobby. But while most of the population have some experience in buying or renting their homes, few would know how to go about leasing a shop.

Vacant shops are sometimes advertised in general estate agents' windows, but they are more commonly dealt with by specialist commercial property agents. Adverts can be found in the trade journal, Estates Gazette, which also publishes a monthly directory of agents. The Royal Institution of Chartered Surveyors (RICS) and the Incorporated Society of Surveyors, Valuers and Auctioneers (ISVA) will provide details of suitable members in a given geographical area.

Shops can be bought and sold in just the same way as residential property. This can have advantages if, for example, the property includes a flat above the shop. Lenders may insist on commercial mortgage conditions, however, which have higher rates of interest and do not offer the benefit of mortgage interest tax relief.

But it is more usual to rent. Until the late 1980s, shops tended to be let on long-term leases - 15 years or more - which required a considerable commitment on the part of the tenant and could lead to disputes over responsibility when leases were sold on.

However, landlord and tenant law has changed recently, making leasing conditions more favourable to tenants, and shops and other commercial properties are now commonly let on short-term leases of between six months and five years.

Agreements of less than 12 months are actually called licences to occupy, and do not offer security of tenure. Longer leases give greater security but may involve more onerous obligations, such as the need to repair and maintain the physical condition of the property. In some cases, this could include responsibility for putting a shabby property into good order before you even start trading. So it is important to establish the existing condition of the shop, and to estimate the likely costs of present and future repairs.

Negotiations with the landlord could include a rent-free period if extensive repairs are needed. Maintenance obligations will usually include redecorating the outside of the property every three years and the inside every five.

The complications of leasing will almost certainly entail experienced professional advice. Paul Davison, of Adlers chartered surveyors, says: "It is easy to start up a business, but when you sign a lease for a shop you will be committing yourself for a number of years. So it is of the utmost importance to get professional advice from a chartered surveyor specialising in retail property in your area."

Annual rents for shops can range from pounds 400 per square foot for prime high-street locations to pounds 20 per sq ft for corner shops on housing estates. The situation is complicated by a zoning system where the first 20-foot depth from the front of the shop is the most expensive, the next 20-foot strip costs half that, the next one-quarter, and so on.

Rents will also generally be subject to five-yearly review, and in shopping centres a 20 to 25 per cent component of the rent may be based on your shop's turnover. This is to encourage the landlord to promote and market the centre, and to compensate the tenant if this marketing is ineffective.

As well as the usual considerations of location and cost, give some thought to the proposed use when leasing. Shops are classified under three categories: A1 is common retail use; A2 is service provision, such as insurance or banking; and A3 is for food retailing or restaurants. Any change from one category to another will require planning permission; a former shoe shop can be used for selling fishing tackle, for example, but not as a delicatessen.

Food retailers and restaurants also have to comply with strict hygiene regulations, and anywhere used for alcohol sales will be covered by quite separate licensing laws.

The landlord may impose extra restrictions. If there is already a greengrocer in a row of shops, for example, then there may be a restrictive covenant on that shop's lease preventing another greengrocer from setting up in the same row.

If you are thinking of opening a shop for the first time then be aware that the market for shops and other small commercial properties, just like the housing market, is buoyant at the moment.

Stephen Anderson, a London-based commercial property manager, says: "There are still vacant units to be had, but the take-up is a lot better than it was even a year ago." As evidence of this, Mr Anderson has just let a shop in Streatham High Road in south London which has been vacant for 10 years.

q Contacts: RICS, 0171-222 7000; ISVA, 0171-235 2282.