Last week, we woke up to the news that Nuli Juice Company, Nuts About Cakes, The Drug Store —all small businesses in the upscale Ikoyi area of Lagos— were on the verge of being demolished.
The Drug Store had only opened for business a week earlier and Nuli Juice opened six weeks earlier. The owner of Nuli Juice only became aware of the demolition when the bulldozer showed up ready to reinstate her shop to what was once her imagination —she did not receive any prior notice.
She was shocked, as like most savvy entrepreneurs, she had obtained all relevant permits, licenses, paid her taxes, etc. In the midst of the chaos, she found out that the demolition was as a result of the landlord’s failure to pay N40 million in permit fees. The landlord was given prior notice before her lease term commenced. Within a few hours, the only evidence of the stores was rubble.
Unfortunately, Nuli Juice, Nuts About Cakes and The Drug Store represent a few of the many businesses that experience this issue on a yearly basis. Given the recent trends, it is evident that applying for a business permit, registering the business and registering with the tax authorities are not sufficient to safeguard businesses.
Business owners must take additional precautionary steps to further protect their businesses from unexpected disruption or in this instance, demolition. Below are a few additional precautionary tips.
1. Dig deeper
Treat your store lease like you would treat the purchase of new land. Before signing a lease, conduct a thorough search on your potential landowner, the land, and the building.
- Not every alleged landowner is indeed the true landowner. Ask people in the neighborhood about who owns the building. Investigate to make sure that the alleged landowner indeed owns the building.
- Ask about the landowner’s reputation. Has the landowner had any brushes with the law (personal or otherwise)? If the landowner has a multitude of legal cases (personal or otherwise), it may not be wise to lease from him or her as the building might become subjected to legal processes.
- Ask whether the property has been subjected to any extraordinary visits from government officials. Such regular visits could be a sign of disaster waiting to strike.
- Confirm from the landowner that all relevant permits have been obtained. Thereafter, negotiate his or her assertion into the warranty section of the lease agreement. Do the same for licenses, permit fees, etc.
- If the store has been recently renovated, ask the landowner to confirm, in the lease, that all renovations are in compliance with all relevant laws.
- Ensure that there is a valid certificate of occupancy for the building.
- Check with your local government officials to make sure that the neighbourhood has indeed been marked for business purposes and not strictly residential purposes. Your business will most likely be kicked out of the neighborhood if the area is strictly a residential area.
Many small business owners ignore the importance of negotiating the content of their lease agreements. Despite the fact that as a small business you may not have much bargaining power, you still owe it to your business to take all necessary steps to protect your investment. So, before you sign the dotted lines, negotiate!
- Include a clause in the lease agreement that covers you in the event that your store is destroyed or damaged as a result of the landowner’s act or failure to act. Such provision will allow you to seek damages (i.e. seek payment for losses) from the landowner in the event that something the landowner did or failed to do caused disruption to your business.
- Most business owners assume that the landowner pays for repairs and often skim through the repairs provision of the lease. Please do not be one of those. Do not assume. Ask! If the lease contains a provision that requires you to pay for repairs, try to negotiate an exemption for normal wear and tear of the premises. Under such arrangement, the landowner will cover repairs for damages that are not caused by you.
- Also, pay close attention and negotiate who will be responsible for big-ticket items such as plumbing, roof leaks, air conditioners, etc.
- Review your lease agreement to make sure that it includes a clause that states that the landowner does not owe any duty to any other persons or third parties (e.g. taxes, liens, restrictions). That way, you will be protected contractually should there be any third party interference on the property.
3. Ensure your business is covered
Many small business owners underestimate the importance of business insurance. Business owners should ensure that their businesses or their buildings are covered by insurance. Such coverage will minimize the impact of a disaster to the business cash-flow.
- Consider obtaining business insurance that covers material damage to your business premises and their contents. This should cover malicious damage, strike, riot, flood, storm, burglary, and litigation.
- Alternatively, consider requesting that your landowner purchase a building insurance that will cover your business in the event of a business disruption (such as a fire incident, obviously, not a fire you deliberately caused). Such insurance policy should be able to provide an alternative store location in the event that your current store is inhabitable.
This process might seem daunting. However, as the saying goes, “its better to be safe than sorry.” These steps, though not exhaustive, can add an additional layer of protection from undue external business disruptions.
If you would like insights on a particular topic, write to us! We are listening.