Are you sitting on a development opportunity?
Many business owners who are lessees are suffering a dramatic slow down in their businesses but are locked into leases for a number of years. This could be the time to think of alternative uses for your premises such as converting or demolishing the property for residential use.
You would need to obtain specialist advice from a planning consultant, building contractor and your lawyer to fully consider the potential for redevelopment. It is also extremely important that you talk to your bank manager at an early stage to ensure that that the bank will fund the development and that the figures stack up.
Securing an option
If you decide to proceed, then you must secure an Option to purchase the freehold from your landlord before making the planning application. An Option is an invaluable tool for a developer. The Option would give you the right to purchase the freehold at an agreed price within a specified period if you secure a planning permission. However, if you fail to obtain a planning permission or the development becomes commercially unviable, the Option can be left to lapse.
Negotiations with your landlord
You will need to negotiate the terms of the Option with your landlord.
An important aspect of the Option is the Option Period. You need to secure the longest period possible. It would be disastrous if you obtained a planning permission but ran out of time to exercise the Option as the landlord would then receive the benefit of the uplift in the value of the land. In addition, the landlord could also use the planning permission as a ground to serve a break notice (if the lease permits them) or to take back the premises when the lease expires, where they can show an intention to redevelop the property themselves. You could effectively be “shooting yourself in the foot” if you wish to carry on your business and/or sell it at a later date if you do not exercise the Option.