This article could help you to save you a significant amount of money and minimise risk when negotiating a lease on either a new office premises or an extension to your current lease term.
Measure the size of your office
It was only recently that the IPMSC developed a single property measurement standard to tackle the problem of property assets being measured in multiple ways. Research by JLL shows that, depending on the method used, a property’s floor area can a property’s floor area can deviate by as much as 24%.
This new measurement is helping property users, investors, occupiers and developers to accurately compare space. Since you’re looking to negotiate rental terms, it could help reduce the square footage of your floor area (in comparison to an old measurement), which should result in a reduction in property costs.
A lack of data
The vast majority of businesses are driven by data to increase profits and for many data is used to save money. However, a staggering amount of businesses don’t apply this principle when it comes to property costs.
In negotiating a new lease or a renewal of your existing lease, macro and micro data is a fundamental ingredient to a successful negotiation. Remember, the landlord’s key objective is to protect his investment and maximise the ROI (Return on Investment). They will be putting out all the stops to achieve a higher rent as possible. Since 98% of landlord’s agents also represent tenants, there’s a massive conflict of interest in the industry, which will inevitably effect how good a deal you will get unless you represent a tenant-only advisor.
In doing so, you will be guaranteed that your advisor will be working purely in your best interest to help decrease the rent at negotiation based on data and statistics relating to commercial properties in and around your specific location.
Inaccurate comparable evidence
Similar to a lack of data, when negotiating a lease it is likely to factor in strong comparable evidence from the landlord or his agent, and you need to be prepared with the best armoury. It has been a landlord’s market for several years now, and although the market is arguably stagnant due to the announcement of Brexit, property transactions are continuing with a “business is usual” mentality as recent transaction are still averaging between £55 to £65 per sq ft.
However, each building has its own story when it comes to negotiation due to the number of tenants in the building and their lease events such as rent reviews or lease expiries, amongst other variables. It is essential therefore to compile strong comparable evidence of similar offices in terms of size, condition, type of building, location and lease term.
How to structure a lease
Many business occupiers tend to opt for a 5 or 10 year lease term, including a break option in the third or fifth year respectively. Whilst there’s nothing wrong with this, our advice is to step away from the norm and think about whether your business can afford to be flexible.
For example, are you able to negotiate the break clause in the second year to allow for greater flexibility? Whilst this may result in a slightly higher rent, the flexibility could be of greater value in relation to your business growth plans. Alternatively, could postponing the break option to the sixth year result in a lower rent or greater incentive package? Professional advice on how to structure a lease could generate a better outcome for you.
It is best practice to marry up the date of the break option with the rent review, since the break option can be used as leverage at negotiations if structured correctly. Professional advice on this matter is strongly recommended.
Make sure the lease is clear about who is responsible for repairs, redecoration and maintenance of the property. This could be included in a service charge or be specific requirements under the lease.
If it is you, then you will need to take account of this extra cost in your budgeting. If it is a building with several occupiers, then if you are partly responsible for repairs to the building, then make sure you are only responsible for a fair proportion of the costs.
Depending on your responsibilities under the terms of the lease, you may want to negotiate for any major repairs needed to be completed before your lease starts.
It’s also best practice to ensure that you have a Schedule of Condition to record the state of repair of the property at the start of your tenancy. This exercise has a nominal cost which has proven to save £10,000’s for many businesses.