06 Premises issues

Finding suitable premises

The key tasks are firstly to locate potential premises, then to assess their suitability for your purposes. You may be looking for a leasehold, freehold or a vacant site for a new building. Before you start looking at properties, make a list of your basic minimum requirements to use as a checklist.

There are a number of options for locating vacant premises:

1. Local newspapers
2. Local authorities, which often keep a register of vacant commercial premises
3. Estate agents, particularly those who specialise in commercial property
4. Internet searches

Tenure issues – the perils and pitfalls of leases

The whole basis of ownership and occupation of land and buildings is different under Scottish law. The following section relates mainly to England.

Gaining freehold ownership of a building by and large entitles you to peaceful occupation and, planning restrictions aside, leaves you free to do what you want when you want. You do not have to pay rent, so the on-going revenue costs (loans or equity finance) are more controllable. You may be able to rent out parts of the building to other businesses in order to generate additional income. However, the most common type of ownership is a commercial lease.

Leasehold ‘ownership’ – a peculiarity of English law – dates back to feudal times and ensures that land and property ownership remains in the same hands from generation to generation. As a leaseholder you do not own the property in perpetuity as you do with a freehold. You ‘own’ it for a specified length of time (the ‘term’) during which you have similar kinds of rights of occupation and access as a freeholder.

You pay once for the lease (the ‘premium’) and you also pay rents to the freeholder who may vary these on a regular basis with no ceiling on what may be charged. You are also usually liable to pay for all repairs to the building, which must be carried out to a minimum standard by an approved contractor within a given time frame.

Additionally, once the term of the lease expires you own nothing. While leasehold agreements these days are rarely constructed to deliberately mislead the unwary, you need to think very carefully before entering into one. The golden rule is to get a solicitor to review it and don’t sign anything until you have finance lined up. While many clauses are standard, don’t think of the lease as a boring bit of bureaucracy. Read it carefully and ask your solicitor to explain anything that isn’t entirely clear.

Premium

This is a one-off capital sum which some highly sought after leases may attract. Generally, a high premium is often offset by a low rent and vice versa. For difficult to sell leases, there is unlikely to be a premium and in the cinema business, it is unusual to pay one.

Term

In theory, a long lease is better than a short one as you have security of tenure and it becomes more worth your while to invest in the property. However, on a long lease you are generally liable for the rent for the full term, regardless of what happens. Even if the lease allows you to transfer (assign) it to someone else during the term, you may still be required to underwrite the rent.

In the case of a Limited Company, it is not uncommon for the landlord to ask for personal guarantees from the Directors or even another organisation (e.g. the local authority) if he/she deems the company ‘risky’, i.e. one without a trading track record.

Assignment

The lease usually either prevents you assigning it entirely or requires permission from the landlord to do so. Even if you are able to find someone who wishes to acquire the lease from you, the landlord may not give permission or may require you to underwrite the rent in case the assignee defaults.

Repairs/insurance

Most standard leases are what are known as ‘full repairing and insuring’ leases. This means that the lessee is responsible for buildings insurance and all repairs to the fabric of the building during the term.

Dilapidations

There is also generally a standard clause which requires the lessee to hand the property back to the freeholder at the end of the term in the same condition as when it was acquired. This means making good any wear and tear and may also require the lessee to undo ‘improvements’ made to the property while they occupied it. For example, the property which was once open plan offices which the lessee converted to individual offices may need to be returned to an open plan arrangement before being handed back.

Rent reviews

Almost all leases make provision for the landlord to periodically raise the rent – generally every five years, though sometimes shorter or longer periods are specified. It is not uncommon for rents to double, treble or quadruple after review and there is no ceiling on what can be charged. The only right of appeal is through an independent arbitration process which generally attempts to establish what the going rate or market rent is for premises in that area. It will also need to take account of the frequency of review and general trends in property prices.

A market rent is simply a rent that someone is willing to pay and so while you may feel that a rise is extortionate, if the landlord can demonstrate that similar rents are being paid elsewhere nearby, arbitration is unlikely to find in your favour. In fact, it may even determine that the new rent should be raised further, so there is an additional risk in going to arbitration.

Restrictive covenants

Restrictive covenants are additional clauses in leases which prevent the purchaser from doing certain things. In recent years, a problem for a number of campaigns to save former cinemas after they were acquired and closed down has been a restrictive covenant imposed on sale of the lease, preventing the building from being used as a cinema again in the future.

It may be possible to negotiate removal of such clauses (for example, by paying a fee) but if the vendor will not compromise, there is little you can do. This issue can also apply to freeholds. For example, it’s not uncommon for certain religious organisations to prohibit the sale of alcohol in premises previously used as churches.

Charges

What does listing mean?

The word ‘listing’ is a shorthand term used to describe one of a number of legal procedures that help Historic England to protect the best of our architectural heritage. When buildings are listed, they are placed on statutory lists of buildings of ‘special architectural or historic interest’ compiled by the Secretary of State for Culture, Media and Sport under the Planning (Listed Buildings and Conservation Areas) Act 1990, on advice from Historic England. Listing ensures that the architectural and historic interest of the building must be carefully considered before any alterations are agreed.

Why are buildings chosen?

The main criteria are:

• Architectural interest: all buildings which are nationally important for the interest of their architectural design, decoration or craftsmanship; also important examples of particular building types and techniques, and significant plan forms
• Historic interest: buildings which illustrate important aspects of the nation’s social, economic, cultural or military history
• Close historical association with nationally important buildings or events
• Group value, especially where buildings comprise an important architectural or historic unity or are a fine example of planning (such as squares, terraces and model villages). The older and rarer a building is, the more likely it is to be listed. Post-1945 buildings have to be exceptionally important to be listed. Buildings less than 30 years old are only rarely listed, if they are of outstanding quality and under threat.

Why are there three grades?

Listed buildings are graded to show their relative importance:

• Grade I buildings are those of exceptional interest
• Grade II* are particularly important buildings of more than special interest
• Grade II are of special interest, warranting every effort to preserve them.

There are over 370,000 list entries currently protected by listing, and of those by far the majority – over 92% – are Grade II. Grade I and II* buildings may be eligible for Historic England grants for urgent major repairs. Currently there are about 200 listed cinema buildings in the UK, though some are no longer in operation as cinemas. The Cinema Theatre Association has a helpful breakdown on its website.

How to get a building listed

Requests for individual buildings to be spot-listed can be made to the Secretary of State for Culture, Media and Sport at any time, though priority will be given to those under threat. It is important to draw attention to any new evidence which may explain why the building’s special interest has previously been overlooked. It is best for all involved if buildings are assessed for possible listing before planning permission has been granted for redevelopment, since last minute listing can cause difficulties and additional expense if it takes place without warning. The thematic listing programme is designed to help reduce this risk.

What is the procedure?

Requests to list buildings should be sent to Historic England. Full information including application form guidance notes are available on their website. As well as your reasons for wanting the building listed, you should include:

• A location plan showing (where possible) the position of any other listed buildings nearby
• Clear, up-to-date photographs of the main elevations of the building
• Information about the building, e.g. date of construction
• Details of specialised function (such as industrial use)
• Historical associations
• The architect’s name
• The building’s group value in the street scene
• Details of any interior features of interest
• Contact details for the owner or his/her agent for access to the building for an inspection.

Historic England and the Department for Culture, Media and Sport (DCMS) aim to complete the whole process within five months.

How to appeal against listing

There is no statutory right of appeal, but if you think your property is not special enough to be listed, you can write to DCMS. If you are planning an appeal, the Department can provide a guidance note on the criteria used in considering listing appeals. Because listing appeals are non-statutory, applications for de-listing are not normally considered if a building is the subject of an application for listed building consent or an appeal against refusal of consent, or where a local authority is has to take action against the owner because of unauthorised work or neglect.

© Historic England

Licences

Cinema licence

You are now required to attain a single licence from your local authority. The 2003 Licensing Act removed the requirement for cinemas to have a separate Cinematograph licence, or for mixed arts venues to have a Public Entertainments licence. Instead, film is categorised as a ‘licensable activity’ under the act and organisations must apply for a premises licence from the local licensing authority (usually your local council).

The licensing authority will normally grant this licence for your cinema to screen films that have been certified by the British Board of Film Classification (BBFC). Cinemas looking to screen films that are not BBFC-certified will generally have to submit these separately to the local licensing authority for local certification.

This licence for your premises should not be confused with the content licences obtained from film distributors that enable you to screen their films. Cinemas are required to obtain a theatrical licence agreement from the relevant distributor for each film that they screen. Film societies and other exhibitors in non-traditional cinema venues must obtain non-theatrical licences for films (see our in-depth guide to non-theatrical licensing).

Fire prevention

Before you can open your doors to the public you must carry out a fire safety risk assessment. You can find downloadable guidance for completing this (published by the Department for Communities and Local Government) here.

As with health and safety requirements, it is preferable to invite an inspection of your premises and plans prior to contracting for any building works. In theory your architect will know what the rules are, but it may still be worth checking that a certificate will be issued once the work is done. In the course of such an inspection they may pick up on other things which need attention. Once open and running, fire authorities will visit from time to time to inspect the premises to ensure compliance with the law and to familiarise themselves with the premises in the unlikely event of a major incident.

Health and safety

The local authority’s rules relating to premises licences do not in any way replace or reduce the underlying statutory duty of employers to comply with the requirements of the Health and Safety at Work etc. Act 1974. This legislation requires, amongst other things, an assessment of the risks to staff, patrons and others who may be affected by their business and identification of measures required to control or avoid these risks.

Local authorities are responsible for monitoring compliance with this legislation, usually through their environmental health services. It is advisable to involve the Health and Safety Executive at the earliest opportunity, especially if you are undertaking building works.

Safety certificates you may require include mechanical and electrical, ceiling, heating and ventilation and various insurances that must be kept up to date as a condition of your cinema licence and operating a building.

Building regulations

You will need a licence from PRS to cover the playing of music in film soundtracks. You are also likely to need a licence from PPL for the use of recordings and ambient music played in the foyer and auditoria. The UKCA (UK Cinema Association) offer a reduced rate (20% discount) PPL licence scheme for all UK member cinemas based on the number of screens you are operating. You will need to negotiate directly with the PRS.

Restaurant and liquor licences

Building regulations

Technical requirements of the Building Regulations and guidance on how to meet them are available in Approved Documents, a section of the GOV.UK Planning and Building Portal. These cover a number of areas including structure, fire safety, sound resistance, toxic substances and the conservation of fuel and power.

It is important to remember that the contents of the Approved Documents are only guidelines; they are not set in stone and there may be some flexibility in their interpretation. Your architect and/or builder should be fully up to speed on Building Regulations, so you should not have to deal directly with this aspect.

Summary of key points from Chapter 6

• Before looking for premises, draw up a list of your minimum basic requirements
• Always employ a solicitor to help you navigate the perils and pitfalls of leasehold agreements. If you cannot afford to employ a solicitor, you may be able to source free legal advice from organisations such as Lawyers Volunteering for the Arts (LVFA)
• While listing a building may confer benefits in terms of preservation, it can also make it harder to get planning consents
• Make contact with your local authority’s Fire Officer as soon as you can. What he or she requires may have significant implications for your budget
• You are likely to require several different licences including a premises licence, a fire certificate, a restaurant licence, a liquor licence, and licences for use of copyright protected music
• Get in touch with your local authority’s planning officers and environmental health department early to sound them out on your proposals.