Taking on a business premises can be a high financial commitment. When entering a long-term lease with the Landlord, you typically do so with the confidence that your business will thrive and remain stable in the years to come. However, unforeseen circumstances can arise, and the type of lease you sign may put you in a challenging situation. Therefore, it is crucial to consider whether to put your business property lease in your personal name or in your company’s name.
Pros of entering the lease under a company’s name
A limited company has its own legal entity since the first day of its incorporation, which means that the company itself should be responsible for any debts owed by it. No matter you are a director or a shareholder of the company, most of the time you will not be personally responsible for the company’s debts. Put the lease under your company’s name can thus prevent you from being personally responsible for the lease.
In addition, if your company has operated for several years with extensive business experience and has previous rental history, the landlord is likely presuming that the company is a reliable tenant. As a result, the process of negotiating the lease with the landlord can be smoother and the landlord may not require a big amount of rent deposits or impose other hefty requirements.
Furthermore, tax issues should also be taken into consideration. A company may benefit from several tax reliefs and potentially lower tax rates. Put the lease under the company’s name may well save your money.
Cons of entering the lease under a company’s name
While it is always ideal to enter a lease under your company’s name, things can get tricky if the company is newly incorporated or it has little or no trading history. In this situation, it is likely that the landlord will demand a substantial rent deposit (often 3-6 months’ worth, but can be more). The landlord may also require you to provide a personal guarantor for the lease. The personal guarantor should normally be in a financial situation which is satisfying to the landlord.
For example, an ideal guarantor shall have some fixed assets, have stable revenues and preferable be a UK resident. Since the guarantor’s potential liability can be heavy, it is not easy to find a suitable person acting as a guarantor for you. These requirements are to ensure that the landlord will not suffer too much loss when the tenant’s finance is in problem, which means that it may be difficult to negotiate with the landlord to give up these requirements. If you cannot meet them, you may have to enter the lease under your personal name.
In conclusion, leasing business property is a complex decision with potential risks. It is essential to thoroughly understand these risks and weigh your options carefully before committing.
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