In the current uncertain economic climate, signing up to a new office lease can be a tricky business.
One thing is certain at the moment and that is uncertainty. How much office space will you need in 3 to 5 years time? Well, that depends on whether people will want to work remotely or not. Do you need a desk for everyone or say, 50% of your team?
The current uncertain trading environment presents an opportunity for tenants to negotiate more favourable terms with their landlords. For example, the rent rate may only make sense if a certain number of people can be accommodated in particular premises. However, the current social distancing regulations may mean that there is room for less workstations or offices in the premises. This might give the tenant an opportunity to negotiate a lower rent on a staff headcount basis. Large landlords who are sufficiently capitalised to absorb the reduced cash flow may be willing to agree to slightly lower rents in order to get a tenant in place. The current market may also give businesses an opportunity to incorporate more favourable clauses into a lease agreement.
Clauses that matter
One of the key clauses to incorporate into your lease is a break clause. A break clause gives you the right to end the lease early by giving the landlord an agreed period of notice. This gives you some flexibility to terminate the lease if economic factors or personal circumstances impact your requirement for the premises in the future.
Another useful element to include is a sub-letting clause. This allows you to pass on some of the premises to another lessee if you don’t need all the space right now.
If your business becomes smaller in the future, you may want to be able to sub-let some of the premises in order to generate additional income that you can use to off-set against your lease payments.
Trying to secure a commercial lease with beneficial terms can be a challenging and complicated process. Getting legal advice from an experienced lawyer is a very good idea and it could save you money in the long term – for example if you need to terminate the lease early.
January 27th, 2021