Hair Salon sub-let

Hair Salon sub-let

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A sole trader hair salon incorporated back in 2013 and we have had the client since 2018.

The last signed lease covered to June 2015 and was in the sole traders personal name. It was never formally assigned to the company and no new lease has since been signed.

There is no VAT on the rent which has always been paid for by the company direct and claimed by the company as an expense. The monthly rent invoice is addressed to the sole director/shareholder personally (sent to salon premises) but the accompanying letter 'advance notice of direct debit collection' is addressed to the company and refers to the company bank account for payment.

The client has been advised previously that any new lease should be drawn up in the company name. They have approached the landlord for this and been told that it would be at their cost so nothing has ever happened.

The client called today to say that one of their employees is self employed from 01/04 and will be paying a monthly rent and a monthly fixed fee towards consumable products. The client thinks that the rental income is their personal income with the company receiving the products fee only.  

Ignoring all of the potential employment v self employment, VAT and tax risks of a set up like this, would the company or the individual account for the rental income?

 

 

 

 

 

Replies (3)

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VAT
By Jason Croke
27th Apr 2023 17:53

The head lease is with the individual person, not the company. The company can't just occupy a place it has no legal right to occupy, and it follows that the new starter can't pay rent to the company, as the company hasn't got any right to charge rent as it doesn't legally occupy the premises.

The individual person/Director is not the same as the company.

It also follows that there should be a sub-lease between individual person and their company.

Novating a lease is not expensive. What if a customer slipped in the salon and was permanently disabled? Who is liable for that? I'd have thought it was the legal tenant of the salon, that'd be the Director personally.

I think you need to fix the basics before you can truly conclude where the rental income goes, else you'll simply be compounding the problem.

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Replying to Jason Croke:
paddle steamer
By DJKL
27th Apr 2023 20:51

There are though some interesting ramifications where a landlord knowingly accepts rent from a party who is not his/her tenant, in Scots law it used to be in the realms of homologation or Rei Interventus (Requirements of writing tends to dispense these days), but one would be hard pressed to get a solicitor to not raise concerns were one accepting rent payments from a party in occupation who is not one's tenant. (It can quite often happen especially where tenants do group reshuffles but cannot be ar*** sorting the leases, I have one right now where my tenant is, per companies house, dormant and another company in the group is trading from our property)

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Replying to DJKL:
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By Elgin
27th Apr 2023 21:46

I did wonder whether there were implications for a landlord (pension co) accepting payments for an extended period from a third party when they where clearly aware that it was a company rather than an individual.

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