Reconsidering Space Options
UK businesses have been reconsidering their space options post pandemic.
Following the turmoil caused by the pandemic, UK businesses have continued to consider their office requirements. Three quarters (76%) of respondents to our survey said they’ve changed the amount of office space they occupy in the last 12 months or are planning to change it in future.
Despite overall economic concerns, more than a third of respondents said they took on more space in the last 12 months- 34% compared to the 13% that said they had reduced it. This was particularly high in Greater London, where 39% said they’d taken on more space and 14% said they had reduced it.
Have you changed the amount of office space you occupy in the last 12 months or made the decision to change it going forward?
Businesses are planning ahead
Nearly one in three surveyed office occupiers are looking closely at their current space to decide if it fulfils their future needs.
Over one fifth, (22%) of respondents to our survey said that they’ve made the decision to take more space soon, with 7% looking to reduce. Again, whilst these figures are highest in Greater London, where 27% of office occupiers in our survey said they plan to take more space soon, the trends are widespread across the country.
An additional 9% of respondents haven’t yet made plans to change office space but would like to do so.
Only 24% of respondents across the UK said they’ve not changed the amount of office space they occupy in the last 12 months or made the decision to change it in future.
UK businesses certainly appear to be on the move.
Top tips for occupiers moving premises
If you’re looking to move offices, here are the key considerations for dealing with existing and new leases:
When leaving your current premises:
1. Exit formalities – It sounds obvious, but the first step is to clarify when your current lease will end, whether prior notice needs to be given and any deadline for doing so. If you’ll require flexibility around your exit date, your options will be determined by factors such as whether or not your lease is protected by the Landlord and Tenant Act 1954, whether any notices have been served or legal proceedings issued, and how much you’re prepared to pay for that flexibility. If you’re planning to exercise a break option it’s sensible to seek legal advice 6-12 months before the date any break notice is due to be served.
2. Dilapidations - As a minimum, ensure you have an accurate record of the condition of the premises before lease expiry, preferably prepared by a building surveyor. Carefully reviewing your obligations and calculating the likely cost and time needed will help you make an informed decision on whether to carry out some or all of the works. In most instances, complying with your dilapidations obligations will reduce the likelihood and value of a claim from your landlord. However, you should also factor in what you know about the market and your landlord’s intentions as they could have a significant impact on the value of a claim.
Before entering into a new lease:
3. Sustainability – Green leases are becoming increasingly common but there’s currently no model form of clauses. This means that your intentions need to be clearly drafted. We can help to ensure that your goals are balanced with your landlord’s requirements and that you understand the cost and practical impact to your business. Collaboration at an early stage is vital.
4. Minimum Energy Efficiency Standards (MEES) and Energy Performance Certificates (EPCs) – If your new office premises will require works to meet current and/or future MEES requirements, it’s worth considering the potential disruption and cost to your business and negotiating provisions in your lease to compensate for any inconvenience. For more information on MEES and EPCs, see page 7.
5. Rent Review – Due to rising interest rates, you should check the rent review provisions carefully. The most common types of review are stepped, open market, Retail Price Index (RPI) and Consumer Price Index. RPI will be phased out by 2030. A reputable surveyor will be able to help clarify which is likely to be most favourable for you as well as highlighting any pitfalls.
6. Service Charge – It’s essential you have clarity around any service charge provisions in the lease and the specific services that your landlord will be seeking to include. You should review previous years’ service charge accounts (if available) and the upcoming budget to understand whether the landlord is looking at any significant works or to include any unusual expenses. It may also be appropriate to seek a service charge cap and/or exclude specific items from the service charge.
7. Works and timetable implications – The timetable and implications of any required fitting out works for your new office is particularly important when factoring in landlord’s approvals. This will prevent both delays and eating into any agreed rent-free period. There are also considerations with the drafting around the responsibility for repair and reinstatement of any works.
8. Break Rights - Carefully consider and negotiate your right to break the lease, particularly in respect of any pre-conditions that must be complied with in order to serve notice and successfully operate the break.
Will Scott Partner, Real Estate Disputes, Irwin Mitchell
Sarah Swann Legal Director, Real Estate Transactions, Irwin Mitchell