Many businesses are reassessing what office space they need in light of a seismic – and quite possible irreversible - change in working patterns following the pandemic. Aman Sahota-Dhatt, Principal Associate in the Higgs LLP commercial property team, looks at what options are available.
The nine-to-five grind, long commutes, packed out trains and a full office all seem to be elements of life that no longer truly exist – at least for many.
Whilst the pandemic has been a real rollercoaster for most businesses, companies seem to have been able to ride the tide and get into a new status quo of home or hybrid working. This includes Higgs LLP where we now use The Best FIT approach, which gives employees the flexibility to work either remotely or from the office.
With the Government bringing all restrictions to an end, what does this mean for the average employer seeking to reintegrate their staff back into offices?
Empty properties have been a major concern for businesses over the past two years - and if it hasn’t already been addressed, corporate occupiers are actively thinking about the space they are in or looking to take on.
Companies either simply have too much space, or those that are searching for new premises are trying their best to forecast what exactly they need.
Is there any flexibility to expand or retract? What to do with any surplus floorspace? These are all important questions relating to one of the biggest overheads a business needs to consider.
It’s unlikely most businesses will revert to a complete return to the office policy any time soon. With that in mind, is it worth keeping excess square footage if you don’t need the space? And what should you do to try and limit your rental exposure and make the most of the premises you are in or proposing to take on?
Generally, if a tenant is already in situ they are bound by the terms of their lease, but that’s not to say there isn’t a way out!
Options range from exercising break dates, assigning your interest, underletting or sharing possession – but what this practically means for an occupier can be confusing.
Contractual term and breaks
How long is left on your lease? If not long, then you might just want to wait it out. Even this, however, isn’t always straightforward.
If your lease benefits from a statutory right of continuation under the Landlord and Tenant Act 1954 (the “Act”), there are procedures you need to follow to let the landlord know that you won’t be staying on.
If your lease is contracted out of the Act, then at the end of the contractual term your lease will automatically terminate. However, a word of caution - be sure that there are no contractual obligations requiring you to provide notice, as these types of provisions might still hinder your ability to get up and go.
It’s also worth checking your lease for break dates. Be warned, if you are looking to rely on exercising a break - this is fiddly. Make sure you get legal advice so that it is exercised correctly with all obligations under the lease fully complied with. If exercised incorrectly, you will miss the boat.
Assigning or underletting the whole
If you find that the above isn’t relevant but you are still looking for a way to get out of your lease, it’s worth looking at the alienation provisions. Through assigning your interest or underletting the premises, you are able to pass on the rental liability to another party.
Assigning your lease allows you to sell on your interest. Sounds simple enough – but remember this process often requires landlord’s consent and there will no doubt be further procedural issues which need to be complied with, such as providing a guarantee for the incoming tenant. Whilst there are some hoops to jump through, in the long run if you don’t require your property, it might be one of the more effective solutions to dispose of the space.
Underletting might also be a good option. By granting an underlease of the premises you will now be able to charge rent, but note you remain liable as tenant under your own lease and will now also be taking on the responsibility as landlord to the incoming undertenant.
But what if you only want to reduce your space?
There are a few options to consider here too.
Assigning or underletting of part
This enables you to either sell or underlet only part of your existing premises. The principles are similar to those above, but as you are dealing with part of the property, you’re likely to find yourself needing to comply with even more onerous provisions under your lease. Assignment of part can be completely prohibited and often underletting of part will be restricted to areas classified under the lease as permitted parts.
So far, we have covered formal options, but what if you want a more informal and flexible working arrangement?
Sharing occupation or granting a tenancy at will
This is the most effective option. It is generally acceptable for commercial leases to include a sharing occupation provision to allow group companies and/or business associates to share desk space in the premises. Usually, no consent is required from the landlord, and this might be an easy temporary option for tenants to supplement their rental expenditure. The same applies for granting a tenancy at will, terminable by either party at any time. It’s important however to check if any consents are required and if the landlord needs to be notified of any arrangement.
Having a chat
Whilst your lease might restrict the way you can deal with the property, speaking informally with the landlord is always a good idea. Whilst the lease might say one thing, the landlord might be happy to re-consider arrangements.
If you are in the process of taking on new premises, the following are helpful points to consider:
Flexibility
Do you want a formal or temporary working arrangement? These days there isn’t a one-size-fits-all and more and more corporate occupiers are looking at taking office space in shared office environments which adopt flexible property platforms allowing tenants to let space on their own terms.
Lease terms
If taking on a formal lease consider key terms such as contractual term, break dates and all forms of permitted alienation carefully. These provisions will set the tone for the next few years and ultimately what you can do with the property in the future – so it’s important that negotiation of these terms is done right.
Alterations
Does the property itself serve the purpose you wish it to? With businesses adopting hybrid working environments, the office is no longer a place in which demountable partitioning is enough. Collaborative space, hot desks and quiet pods are all desirable aspects of an office fit out. If the office you are taking on doesn’t have any of this, the ability to alter the space and the conditions upon making such alterations are key considerations.
Overall, whether you are currently occupying premises or looking to take on new space, the main take-away point is, you have options - but careful review and consideration of the provisions in your existing or proposed lease is imperative when deciding what to do.
