Rationalising leased office space – making the most of your opportunities

With advances in technology, more and more charities and social enterprises (and other organisations for that matter) are reviewing their office space requirements and taking the opportunities this presents for reducing rent, rates and utility bills.

Agile working arrangements are on the increase facilitated by better connectivity and advanced hot-desk booking systems which, in turn, is significantly reducing space requirements for many organisations and improving working arrangements for staff.

In view of their fiduciary and statutory duties, trustees also need to be careful to keep under review the extent of their organisation’s rented office space and whether it is justifiable. The good news is that opportunities are out there for reducing premises overheads and can be taken with a bit of planning, creative thinking and appropriate professional advice.

The office lease (which may have been negotiated many years ago when times and the organisation’s needs were very different) can be seen as something of a straightjacket holding back much needed change. However, if you are keen to seize the opportunities to rationalise your office space, the following questions are certainly worth considering when you next pick up and look through that problem lease.

When does the lease end?

It may sound obvious but the first thing to check is how long there is left to run on the lease term? It is a good idea to start planning for a lease expiry 12-18 months in advance as this may be an opportunity to negotiate with your landlord a reduction in space or indeed to relocate elsewhere. In either scenario, you should also consider the repairing obligations under the lease and the extent of any potential dilapidations claim.

Do we have a break options?

If you have a break option and the landlord is keen for the lease to continue, you may have an opportunity to negotiate variations to the lease including perhaps a reduction of the space and rent. Key to these negotiations is convincing the landlord that you mean business and will exercise the break if you cannot reach a deal. As there is normally a deadline for serving a break notice, the timing of negotiations is crucial as you will need any agreement properly documented before your bargaining power evaporates. A particularly bullish tenant may go as far as serving the break notice before securing a deal in the hope of doing so before the break date, although this is risky as once served a break notice cannot be withdrawn.

Can we assign the lease?

Usually the tenant will be able to assign the lease to a new tenant subject to the landlord’s consent. Ordinarily this consent is not to be unreasonably withheld but may be granted subject to conditions, such as a requirement for the outgoing tenant to guarantee the performance of the lease by the new tenant. The lease will almost certainly not allow assignment of part but assigning the whole is a potential option if you wish to relocate, can find a willing tenant to take over the lease and (if necessary) are willing to stand as guarantor.

Can we sublet?

Depending on the terms of the lease, it may be possible to sublet the whole or part(s) of the premises. Again this will usually be subject to the landlord’s consent (not to be unreasonably withheld) and conditions including possibly limitations on the number of subleases and the areas you can sublet.

The ability to sublet part may be a good opportunity to tailor the size of your office space and generate a rental income for the area you no longer need. However, it is important to note that this does not reduce your liability for the rent you pay to your landlord but is rather a means of recovering some of this from your subtenant. It is therefore important that you select any subtenant carefully as a sublease to a “man of straw” will provide no protection whatsoever unless it is backed up by suitable guarantees and/or a rent deposit.

Can we do a deal with the Landlord?

If none of the other options are available, or are unappealing, there may be no harm in discussing the position with your landlord and seeing if there is any prospect of negotiating changes to or an early surrender of your lease. Of course the arrangement will need to make commercial sense to the landlord but if, for instance, there are development opportunities available to the landlord they may be open to talking particularly if you have security of tenure under the Landlord and Tenant Act 1954.

Professional advice

Every dealing with a lease can carry with it legal, valuation, building condition and taxation considerations and risks. Communication and engagement with staff is also crucial to the success of any premises project involving changes to the workplace. It is therefore essential to seek professional input from experts in these fields, but also to ensure your advisors understand the charitable and not for profit considerations specific to your organisation.

Depending on your organisation’s circumstances, opportunities may well exist which can save money and improve the working environment. We would be delighted to discuss these with you.

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