Negotiating your office lease
During the pandemic, many office-based companies downgraded or gave up their premises entirely in anticipation of remote working becoming the new norm. Recently though, many organisations have recognised the limitations of entirely home-based working and pivoted back to an expectation of regular office attendance. If you are looking for a new premises, to access additional space within your current premises, or simply have your existing lease coming up for renewal soon, this blog will help you get ready to negotiate!
Know the legislation & protect your terms.
The Landlord and Tenant Act 1954 is a key piece of legislation, and the starting point for any lease renegotiation. Knowing whether your lease is protected under this legislation determines which processes need to be followed, and how protected you are when it comes to a renewal. Seek legal advice to be sure where you stand, and continue to use a legal representative during the contract negotiations, which should all be in writing, so that your landlord cannot suddenly change the negotiated terms. Make sure too that you have a written definition of any ‘house style’ legal terms, as some landlords may use certain terms differently from how you interpret them, causing an issue later down the line.
Consider the energy implications
There are two areas to consider in terms of energy – cost and efficiency. Since 1st April, a commercial property cannot be let unless it has an Energy Performance Rating of at least ‘E’, so you should check that this is the case when negotiating a lease. You should also check the situation with energy rates and how these will affect your service charge – some landlords have favourable fixed energy rates, but others might be subject to changing rates which they then pass on to their tenants, causing you an unexpected and unwelcome additional cost.
Ask about flexible leases
Although there definitely has been a shift towards physically returning to work of late, most organisations offer some form of hybrid working, and therefore may not need a desk for every worker, all of the time. Some landlords offer pay-as-you-go leases which allow you to change the amount of space that you need in the building on a month-by-month basis, giving you the flexibility to bring everyone together in busy periods, and save money at other times.
Check your repair obligations
If you’re not careful, the wording in your lease agreement can leave you liable not just for day-to-day repairs caused by wear and tear, but for replacing structural elements of the building. Make sure you have checked the terms, and particularly that you are not required to keep the premises in any better state than when you moved in! Remember to take photos to evidence the state in which you found the premises prior to occupation so that you have evidence to rely on too.
Rent reviews and rent free periods
It is crucial to agree in advance the basis for rent reviews. For a short-term lease (5 years or less) you should expect there to be no rent reviews at all, and for longer leases you need to be aware of how often a rent review might take place, and on what basis – open market rental valuation, or a review by reference to the annual Retail Prices Index. Agreeing this in advance will avoid any nasty shocks with rent increases during your tenancy. You should also check the policy on rent-free periods and whether this might apply to you when you renegotiate your lease, to enable you to use the rent money for fitting out the premises instead.
Don’t forget Stamp Duty Land Tax
Your lease will be subject to Stamp Duty Land Tax at the beginning of your term, and again in any subsequent terms that you remain in occupation after the original lease has expired, under a process known as ‘holding over.’ HMRC require tenants to submit an SDLT return within 30 days of the end of each year of ‘holding over.’ For further advice on this, speak to one of our accountants.