As businesses reassess their space requirements, moving to smaller premises and more flexible office premises might seem like a good option, but beware of the costs.
The Covid-19 Pandemic has changed the working patterns of many office workers - many of whom continue to work from home, for now, at least. Agile working patterns look to become the norm as the Pandemic has proven that the working from home model can successfully operate in practice for many office-based businesses. As a result, such businesses are re-evaluating their office needs and many are deciding to move to smaller and more flexible working environments.
But beware; despite the apparent cost-saving of smaller offices, moving to a new location can sometimes be costly.
Here are some of the costs associated with moving offices:
Once you have found the new premises, a building survey may be recommended to assess the structural integrity and services of the building. A survey is particularly necessary if the lease will be a full repairing and insuring one (FRI). Any issues that the survey brings to light will then need to be dealt with in advance of the lease completing by the tenant’s representatives and advisors.
If the condition of an office at the start of a new lease is anything other than fully refurbished, then that condition should be documented by a series of photographs with written commentary against them. This will help reduce the tenant’s liability for dilapidations at the end of the lease. This Schedule of Condition needs to be agreed by both tenant and landlord and appended to the lease before its completion.
Before a tenant can undertake any alterations to their office space, they must routinely receive formal consent from their landlord for such works. A Licence for Works Agreement then needs to be agreed, once the landlord approves all plans for alterations.
A new office will need a new fit-out dependent on the needs of the business and the level of quality that they require from their office design/fit out team.
A wayleave agreement may be required to allow the service provider to lead necessary cables into the office for setting up an IT or telecom connection. This agreement requires the consent of the landlord. If your business relies heavily on these types of services, the wayleave agreement should be agreed as early as possible as there is often a lead in time before the connection is made.
The running and repairing costs for the common parts or “service charge” of any building are subject to annual review and can go up, or down.
LBTT is charged on land and property transactions in Scotland. The tax is charged at different rates and has different thresholds for different types of property and different values of transaction. Other factors within a lease (such as incentives) have a bearing on the level of LBTT due.
And don’t forget, you may still have a dilapidations liability for the property you are relocating from. A tenant’s repairing obligations under either an FRI (full repairing and insuring) or an IRI (internal repairing and insuring) lease often require the tenant to reinstate their office to the exact condition that it was in when their lease first completed.
Any subletting or assignation of a part or entire lease requires the consent of the head landlord before it can legally complete. The costs involved in the head landlord granting consent will need to be paid. The head landlord usually has an obligation to not unreasonably withhold or delay their consent, provided that any potential restrictions regarding subletting or assigning within the head-lease have been met and adhered to.
Leases that extend beyond five years will usually be subject to a rent review every five years. This applies to both new leases and to subleases. At the time of review, advisors to the landlord will inform them of relevant evidence about available and completed deals on offices in comparable buildings to help establish open market rent.
The great majority of buildings in the UK are elected for VAT. This means that the tenants of those buildings need to pay VAT on the rent. In certain cases a landlord may wish to not elect their building for VAT, usually to make their building more appealing to occupiers that are unable to recover VAT.
Although it is a landlord’s responsibility to insure the building, they then recover these costs from the tenant(s) of the building, sometimes via the service charge.
Insuring the contents of a your new premises is the responsibility of the tenant and covers any losses / damage that may be caused by circumstances such as theft and water damage.
Usual practice in respect of any new lease is for the tenant and the landlord to cover their own professional fees.
If you are considering an office move, our specialist commercial property lawyers are ready to guide you through the various stages of your commercial property transaction, from initial investigations and property searches to completion of lease negotiations.