While the pandemic has led many to increasingly work from home, there remains a need to have a ‘hub’ for businesses to meet. And with supply outstripping demand in some regions, tenants may seek to push for more friendly terms in new leases. In any event, both landlords and tenants have to acknowledge that the purpose of offices has changed in the short term at least.
In general, there is a real need for more flexibility and for all parties to work together to allow tenants to ensure their working spaces remain fit for purpose, both physically and legally. Landlords will also want to have the option to implement redevelopment schemes (but tenants will want adequate protections to prevent them losing their office space).
In this second blog in our three-part series on leases, we give our top 10 points to consider in terms of managing your office leases and drafting new ones.
1) In the post-COVID-19 world, aside from provisions for rent to be suspended while offices are shut following a requirement by law to work from home where possible, tenants may ask for reductions for periods when the offices are only open to key workers.
2) The implementation of smart technology in offices is a new – and expensive – requirement for office schemes, such as the JJ Mack building. Helical’s smartest building uses a combined Building Management System and Converged Network System to create a ‘nervous system’. Its sensors monitor movement and usage to control lighting, heating, cooling and blinds, optimising energy efficiency and wellbeing.
3) Office workers will expect better facilities and amenities to encourage them back into the office more, and this will place added burden on landlords and tenants, increasing service charge and fit-out costs. Accordingly, both parties will need to work more collaboratively to ensure that the right offering is being provided between them, and leases will need to be drafted accordingly.
4) Occupiers may seek to repurpose ground floor spaces into retail or restaurant uses, and user clauses will need to reflect this, to allow easy assignment or subletting for these purposes. Similarly, alterations clauses may need to be widened to allow the related (more significant) works.
5) Given fluctuating space demands, alienation provisions will need to be more relaxed – through assignment, or underletting of whole or part of sharing space on a co-working arrangement basis.
6) Lease periods for office leases have historically been longer than retail and leisure leases, but they are likely to be reduced, with more tenant breaks in order to create greater flexibility. This may come at a cost, however.
7) Workers need more reasons to return to the office, and employers need to reimagine the workplace to provide more services such as childcare, in-office health providers etc. There is also a growth in calls to allow dogs to accompany their owners to work! In addition, landlord accreditations with WELL, Nabers and Wiredscore are increasingly important for tenants. And landlords will want to reclaim associated costs through the service charge.
8) Landlords and tenants are focussing on the ESG ratings of their offices – on the ‘E’, things like biodiversity, renewable energy sources and EV charging (and electric scooter) points are increasingly common requirements. And on the ‘S’, landlords are offering/tenants are asking for social forums (not just environmental forums).
9) There are a wide range of office occupation models now available and tenants should actively engage with their landlords to see what options may be available to them, within the landlord’s portfolio.
10) If landlords adopt a more flexible letting model, market rent may be replaced with a rent determined by measuring user behaviour such as frequency of energy use, room and desk bookings.
For more insight into how leases are evolving across different markets, read our blog on leisure leases. You can also explore the whole range of services our expert team offer on our Real Estate page.
Our Occupier team acts for occupiers across a wide range of sectors, including retail, leisure, warehousing and offices on all leasehold matters – from lease acquisitions and agreements to alterations, breaks, renewals, rent reviews and disposals. Our lawyers use their specialist experience and sector knowledge to provide practical advice to ensure clients have maximum value, protection and flexibility in their leases.
About the author(s)
Felicity Lindsay is a London-based Gowling WLG partner who focusses on commercial development and investment transactions in the real estate sector.
Helen Emmerson is a partner specialising in helping her clients develop, fund and invest in energy generation facilities, crossing a range of technologies.
Kay Desai has gained a reputation of being fiercely committed in advising a wide variety of corporate occupiers in acquiring, disposing and managing various types of corporate space from offices to warehouses, retail units to leisure accommodation and everything in between. Proactive and commercial, delivering to tight timescales within a specific budget and minimal fuss is key to her clients' business objectives and her understanding of the key drivers behind any transaction allows her to focus on getting deals agreed efficiently while protecting her client's position.
In particular, Kay is embedded in the leisure sector, advising market-leading operators on large-scale acquisitions and disposals. Being both a member of the Leisure Property Forum committee and heading up the firm's leisure taskforce, she is widely recognised as one of the go-to lawyers in the sector.
