Opening a shop in London: the guide
For many, London is a shopper’s paradise. Between the trendy boutiques of Camden, the hushed luxury of Mayfair or the effervescence of Oxford Street, there is something for all tastes and all budgets.
Therefore it’s no surprise that many companies, whether major international brands or new entrepreneurs, want to open a boutique in London to take advantage of this attractive, dynamic market. So, how do you go about opening a shop?
Two options can generally be explored. Buying an existing store or creating a store from scratch.
Buying an existing store
In the first case, the challenge is to find the right premises to acquire. It is a complicated and opaque market insofar as the opportunities are not all marketed in a visible and accessible way. It is a hidden market, reserved for insiders. In addition, many traders are reluctant to hand over their business and sometimes you have to provoke fate to find a gem! Many premises will change owners even before they are on the market. It is therefore essential you are supported by experts in order to optimize your chances of success.
In this type of transaction, we then refer to lease assignment and premium, which is the sum to be paid to acquire the lease. Historically, the premium is an up-front payment paid at the outset akin to an advance of rents and, consequently, giving rise to lower rents thereafter. Today, the premium is in fact often just a right to lease.
The amount will depend on many factors: duration of the lease, price of the rent, condition of the premises, transfer of equipment etc. This is a transaction that is hardly framed by law and is linked above all to supply and demand. Note that the premium can only normally be required in the case of a transfer of lease and will therefore be paid to the current tenant who is leaving, and not to the landlord who cannot (in most cases) oppose it. However, it may happen that some owners of well-located premises ask for significant premiums when starting a new lease. It is an abuse but as long as the demand is there, they will profit from it. Welcome to the realm of liberalism where the landlords have all the rights!
It should also be noted that in the context of a lease assignment, it is not possible (in theory) to change the content of the lease. Make sure therefore that you are guided by a solicitor in reviewing the various clauses and ensure that nothing will prevent the smooth running of your operations.
Signing a new lease
The 2nd option when opening your shop is to sign a new lease. This new lease may concern premises which already exist but whose previous lease has expired or has been cancelled (lease surrender). Or it may also quite simply be a new building looking for its first tenant. In both cases, competition is fierce to obtain these premises because the new tenant has the opportunity to directly negotiate the terms of the lease as well as periods of free rent which can be significant. Having an expert by your side is therefore strongly recommended because they will not only help you find that gem but, above all, will help you to negotiate the very best terms for your lease!
When negotiating your new lease, you will often hear the notion of “outside or inside the act” which refers to the “Landlord and tenant act 1954”. To simplify matters either the lease is “inside the act” in which case you have an automatic right of renewal or it is “outside the act” in which case the lease is not automatically renewed when it expires.
Today most of the new leases are signed “outside the act”, so it is important you understand your obligations and also clarify the following points:
- What is the duration of my lease? Is there a break clause? How much is the deposit?
- What are my obligations in terms of the maintenance of the building? And of the premises?
- Will there be rent reviews? How will they be calculated?
- What is my way out if I want to leave the premises sooner (reassignment, sublet, surrender)?
Finally, last but not least, you will have to make sure that the landlord understands and validates the use you want to make of the property. A similar check should be made with the Council who will classify the various premises in accordance with the activities they can accommodate, the famous “classes of use”. The legislation has recently been relaxed, but beware of unpleasant surprises!
All these points will be entered in the lease by a solicitor (lawyer) who will advise you on the legal aspects of the lease and who will take care of the transaction for you. In the UK, there isn’t one notary who will handle the entire transaction for all the parties. Here, each party hires a solicitor and the solicitors must work together to bring the deal to a close.
The problem is that a solicitor will enlighten you on what is legal and what is not; he will explain what the lease contains and your obligations, but will not be able to advise you in the negotiation or in the resolution of any problems. In addition, solicitors only intervene once the negotiation is over, that is to say once the offer has been accepted. It is therefore often too late! This is why, once again, it is important to be accompanied by a professional.
How much does it cost to open a store?
Opening a store is not a trivial project and requires a significant budget. Each project is of course unique and the parameters numerous.
However, we can list the following costs:
- Premium: already mentioned above, this is the cost of acquiring an existing lease. That being said, the market is changing quickly and it is now possible to find premises already fitted out without paying a premium. Don’t worry, we’ll find the perfect fit for you!
- Business Rates: the equivalent of property tax. For a “normal” size shop this tax should run between £3,000 and £10,000 depending on the lease
- Solicitor fees: it is recommended you hire a solicitor to oversee the drafting of the lease. A typical intervention will cost you around £5,000
- Commercial Agent: estate agents generally work on commission. Contact us to discuss our competitive prices. A good agent will save you a lot of money by negotiating the terms of the lease and free rent.
- Deposit: the security deposit is often the equivalent of between 3 and 12 months of rent.
- Fit out: the fit out of your shop can become a large expense. It will all depend on the condition of the premises and the quality of the finishes.
It should also be noted here that the general quality of the stores is quite high and that customer expectations are strong. This is linked to competition of course, but above all to a change in consumer habits. COVID has recently been an accelerator of a deeper transformation. Faced with increased online purchases, stores needed to reinvent themselves in order to offer an experience that cannot be found on the internet. Whether through augmented reality experiences or product customization, stores must offer more, offer better in order to stand out and ensure their sustainability. Make sure to plan the budget accordingly.
As you can see, costs can quickly mount up. However, the overall budget does not end there. Don’t confuse the initial costs and the overall budget. Opening a shop is a capital intensive project and it is very rare to be profitable from the first days. It is vital to anticipate this and to have the necessary cash to be able to hold out during the first few months following the opening.
Having a good understanding of the legal and tax framework is therefore essential for the success of your project. You will need to know precisely what amounts you will have to pay (VAT, employer’s contributions, other taxes, etc.) as well as on what dates.
With our experience, French Touch Commercial can help you in this process. We can help you write your forecast cash flow and produce a summary of the overall budget to plan. Check out our services to see how we can support you in successfully opening your shop.