Having covered some Considerations When Moving Out of an Office, the next step is what to consider when moving into a new office.
We focus on the factors relevant to leasing a new office, as this is the most common scenario. If you are one of the minority deciding to purchase a business premises, your solicitor will need to investigate the title and carry out searches. SDLT and Land Registry fees will apply.
Renting a New Office
If you’re moving into a rented office, you’ll likely fall into one of the following three scenarios:
1. Signing a New Lease
This is a new lease arrangement with the landlord of vacant premises. Terms for this will usually be negotiated between agents acting for both you and the
Landlord. The agreed terms will very much reflect the usual market practice at the time. The landlord will want to settle a fully ‘repairing and insuring’ long-term lease yet, as the tenant you’ll likely want more flexibility.
The following areas are often points for negotiation with a new lease on an office:
- Length of term – leases with a term of over 7 years require registration at the Land Registry.
- Rent – be aware that more ‘tenant friendly’ leases may result in higher rent. There is scope to negotiate, particularly on any rent-free period for fit-out works.
- Repair liability – this will depend on the existing condition of the premises. If the condition is poor, the parties might agree to a lower standard of repair e.g. ‘good repair’ or agree that the repair liability is limited by reference to a ‘schedule of condition’ which is agreed and attached to the lease.
- Service charge – it is important to get clarity on what can be charged for and to obtain historic accounts. Sometimes, a cap is agreed.
- Rent reviews – Clarify timings and basis (open market, RPI or other). There could be SDLT implications if there is a rent review in the first 5 years.
- Security of tenure – Is the lease within or contracted out of LTA 1954? Landlords prefer contracting out as that puts them in control of new lease terms once the current lease expires.
- Break clauses – it is often useful to have a break clause on the same date as a rent review. This allows you to break the lease if the rent is going to increase greatly. Care should be taken with conditions for a valid break notice and in particular, a condition requiring ‘vacant possession’ should be avoided if possible.
- Assignment/subletting – having the ability to do this with as few conditions as possible offers you greater flexibility in the future. However, the landlord will want some control. Evidence that an incoming tenant has sufficient funds to meet the lease obligations is a reasonable request. They may also want to be able to include an AGA, rent deposit, or personal/parent company guarantees.
If possible, negotiate early access to the new office. This allows you to complete some parts of the move in advance of the big day.
Once the main heads of terms are agreed, the solicitors are instructed and the new lease documents will be agreed upon and completed.
Your legal adviser should investigate the title, carry out searches and negotiate some drafting points in the lease. This can be time-consuming and the solicitor may need clarification or instructions on some points (especially if there is a disagreement). For this reason, avoid leaving this process until the last minute, as it could cause some headaches!
2. Assignment of an Existing Lease
This is when you ‘step in’ as a tenant under an existing lease. This is the most straightforward way to take on a new property, as the terms of the lease are already settled and in successful operation.
One of the main points to note is that the assignee will take on the breaches of the tenant. So, if the property is in poor repair, it will be the assignees’ responsibility to put it right.
However, some scope to negotiate a variation of terms with the landlord as part of the licence to assign. This will depend on the bargaining power of all parties.
In this situation, a formal ‘licence to assign with the landlord’ is required. This incorporates the terms and conditions that the landlord will impose on the assignee and the grounds on which the outgoing tenant may exit.
3. Subletting of an Existing Lease
This usually occurs when part of a building is being underlet. Many of the same considerations apply to subletting as are raised in the assignment section. However, a completely new lease (underlease) needs to be negotiated, which follows the terms of the existing lease.
The landlord will need to approve the term of the lease in a formal licence. This option can prove expensive and, if future consents for alterations are needed consent has to be given by more than one party.
Other Documents that Might be Required
a) Agreement for Lease – this would be needed if there are pre-conditions to the grant of the new lease. These include the completion of the landlord’s works (reinstating dilapidations by a previous tenant), the securing of planning permission by the tenant for its proposed use or the surrender of a sitting tenant’s lease.
b) Rent Deposit Deed – to govern any rental deposit required by the landlord.
c) Licence for Alterations – if you need to complete a fit-out or other works to the property. This will usually say that the landlord can require reinstatement of the original condition at the end of the tenancy. You may want this document (and the lease) to require reinstatement ‘where reasonable’. This is most likely to be agreed upon when works add to the letting value or ease of letting. In these cases, the landlord may agree for works to leave the works in place at the end of the term. It is important to get consent for any fit-out before taking the lease.
Other Legal Costs When Moving Office
Asking a solicitor to carry out property searches will typically cost £650-750.
Searches will reveal whether the property can be used for its intended purpose without restriction. They also check that there are no unforeseen liabilities (e.g. environmental clean-up) and the property has all necessary rights such as access.
Following the completion of the lease or purchase, there may be SDLT to pay. This is calculated as a percentage of the net present value of the rent over the lease term. This should be considered at the heads of terms stage as it can amount to a hefty sum.
If the lease is over 7 years it will need to be registered at the Land Registry. Once again, the fee depends on the rent.
The process of sorting all legal documentation when moving premises can be time-consuming and costly. However, the time and money invested in legal services and advice at the outset can avoid a lot of difficulties later on.
We can’t assist with the legal aspects of moving office, however If you are planning an office move and would like a copy of the complete Office Relocation series, or need support with handling the IT infrastructure we can assist. Contact us today to find out more.
