David Laws offers advice on whether or not you should renew your lease.
02 September 2019 | David Laws
Should we stay or should we go? It is an issue senior management faces every five years or so when an office lease comes up for review.
But how and where we work, and how we optimise our workspace affects how we approach renewals. It is critical to ask: does the current workspace and location meet existing and future needs or is there an alternative that would future-proof the business?
Also important is considering employees' demands for innovative workplaces, fuelled by tales of Apple and Google. Of course, not all companies have such big budgets, so a balance has to be struck between a company's ambitions and its contemporary workspace.
Today, even organisations considered conservative - lawyers and accountants, for example - design coffee lounges, collaborative spaces, breakout areas, work pods and open desk space because they understand how workplace supports recruitment and retention.
As occupiers, they have carte blanche to create a workspace that reflects their expectations but the challenge for landlord/owners is to provide the best infrastructure they can to compete with the growing serviced office sector. This requires exciting, contemporary working environments for companies that demand the immediacy of a plug-and-play workspace.
Consider the future
At least 12 months before the lease ends - it can take a year to review, seek alternatives, negotiate a deal, get internal approvals and complete legal matters - senior management needs to determine whether its current lease is fit for purpose or whether their future workspace requires:
- Expansion - even allowing for reconfiguration of the space;
- Contraction - move to a smaller office or, if the lease allows, sublet part of the space;
- Neither growing nor shrinking - stay put, but on better terms by using loyalty to negotiate rent service charge-free periods, for example;
- Being closer to customers or potential partners without compromising employees' commutes;
- Reducing office costs; and
- Creating a more efficient, flexible, productive and employee-friendly environment with a potential reconfiguration.
Weighing up the options
Should we stay? Staying put doesn't mean you have to accept the landlord's terms.
- Would a new tenant be offered the same terms or a better package?
- What are the best terms? Lease negotiations are effectively 'off-market' so shrewd negotiations skills and knowledge of local rental values are critical.
- What is the optimum incentive package 'to stay'?
Does the landlord have an alternative plan for the property?
Should we go?
If moving is best, consider what is necessary and desirable.
- Will desk-sharing work for your organisation?
- Can staff access public transport or parking spaces?
- Can savings be made from more efficient use of space, heating and lighting?
Three vital actions to take
Missing unknowns beyond the fixed costs can be an expensive mistake so use a specialist adviser to minimise short and long-term moving and occupational liabilities.
1 Invest in a pre-acquisition survey
It highlights the true condition of the space and the performance and potential liabilities of 'unseens' such as M&E systems.
2 Identify elephant traps
Make sure the contract is reviewed by someone whose 'day job' is to read property leases and contracts. Knowing where potential elephant traps lie - such as break clauses, rent reviews and dilapidation agreements - is vital.
3 Assess liability
Moving out of an office incurs more than moving costs. Tenants are liable for end-of-lease costs - dilapidations claims and reinstatement - to restore the workspace to its condition when you moved in. Moving to a new workplace that mirrors your ethos and ambitions improves workplace efficiency and helps to attract and retain talent. It becomes an amortised cost that can be realigned to future budgets.
- Consider how much space you really need instead of what you think you need;
- Remember that part-time staff, job-sharers and remote workers should share desks;
- Paperless offices require less storage space;
- Laptops may be better than desktops; and
- Breakout areas could replace meeting rooms.
David Laws is a partner and national business space expert at property advisers Matthews & Goodman