Despite the Brexit vote and the slowing in the rate of growth in the UK economy since the beginning of the year, UK businesses have been showing considerable resilience as they contemplate their property requirements over the longer term, according to a survey by law firm Irwin Mitchell. Only 3% of these said that the vote to leave the EU impacted on their property decisions. An overwhelming 93% said the referendum result had no impact, with 4% said they did not know and would wait and see.
The vast majority of businesses (81%) have revealed that they plan to stay in the same premises for the next 12 months, with a further 18% saying they plan to relocate or take on more space.
This guide to renewing and terminating an office lease will be of value to businesses considering either or both options as a result of the UK’s vote to ‘Brexit’ and its effect on your business growth plans.
Construction began on 51 office buildings in central London in the six months through March and the amount of space being developed almost doubled in 18 months, Deloitte LLP said in a May report. This shift in a heightened supply of office space could provide an excellent opportunity for businesses between now and when construction levels out in 2018.
The amount of construction being carried out will make a significant difference for businesses thinking about moving to new premises and for those planning to stay put and extend their office lease for another 12 months or significantly longer. In receiving professional advice from a tenant-rep firm, you will be able to maximise value from your negotiations well beyond the market norms.
Extending your office lease
It’s typical for SMEs with between 5 and 150 staff to review their leasing options between 12 to 18 months in advance of their lease expiry date. A strategic report can help to evaluate the best options, although if you’ve decided to extend your lease for another 6 or 12 months, or for a considerably longer period of time, it would be worthwhile instructing a tenant-rep to carry out due diligence on the following points:
- The building fabric
- Investment considerations
- The tenant mix in the building
- Lease events of your neighbouring tenants
- Comparable evidence
- Market conditions
In short, a detailed analysis of your office building would factor in the age, condition and refurbishment plans for the building, in addition to whether the building is up for sale or recently acquired by a new investor.
Furthermore, the nature of businesses in your office building is an important factor to consider as part of your negotiations, in addition to an analysis of the lease events in the building. For instance, negotiations would be significantly affected if there are 3 tenants with leases that expire in 2016-17, another 2 expiring in 2018 and a further 3 tenants with rent reviews in that duration. Just to illustrate the point, Aspire recently advised two tenants in Farringdon and significantly negotiated down the rent from £65 to £57.50 per sq ft, partly due to availability in the office building as well as the negotiations surrounding Brexit.
Our advice: Whilst anyone can negotiate a slight reduction in rent, compiling strong comparable evidence in light of current market conditions to prepare for negotiations will often be the deciding factor as to whether you or the landlord has the stronger hand at the negotiation table. This is the primary motive for instructing a tenant-rep, in addition to their skill and tactics at the property negotiations. A review of your existing lease is also highly recommended to ensure that any clauses are fair and reasonable in the current market.
Terminating your office lease
In today’s market, many businesses are looking to relocate to new premises as part of their expansion plans. This could be a result of desiring a change in building and/or location, or to reduce costs where possible.
If you’re thinking about terminating your office lease before the contracted expiry date, there is the opportunity to do so. These methods include subletting part of your office space or assigning the whole of your premises, subject to your rights as per your lease agreement and subject to landlord consent.
Our advice: Even if your lease forbids subletting or assigning your office space, it’s worthwhile getting advice and negotiating this objection with the landlord. As in any market, the landlord wants to protect their investment which means ensuring their tenants are happy and can afford to stay in occupancy until the lease expiry. If you have a genuine reason to relocate but an assignment is the best method to for an early surrender of your lease, seek professional advice.
One final comment is that although the vast majority of office leases are contracted outside of the Landlord & Tenant Act 1954, which means the tenant has no protection or rights to renew their lease, it is uncommon for leases to stipulate that the tenant serves 6 or 12 months’ notice to terminate their lease agreement, although this should be checked if relevant to you.
If you need advice regarding your commercial lease and property strategy, contact Aspire here or
phone 020 3627 25575.