Negotiating a New Tenancy
How to negotiate the best lease terms under prevailing market conditions.
Solicitors
Preparing leases for commercial property has become an increasingly complex job - most leases run to more than fifty pages! There is a constant flow of case law to be monitored and new legislation absorbed. It is therefore helpful to choose a solicitor experienced in this work, and for whom you have a worthwhile recommendation. The work is important and I believe your solicitor should be remunerated accordingly.
All to often we have encountered time consuming arguments between solicitors that can if left unsupervised cause deals to fall through. In these circumstances it is important for the client to carefully consider the points at issue and, if necessary, intervene to effect a resolution. If there are sufficient outstanding contested points, and there is time pressure, then we often recommend that both parties and/or their agents meet with the solicitors to 'thrash out' and agreement.
Prior to such a meeting you should first establish the points which are deal breakers e.g. the landlord wants a ten year term and you will only go to five. Frankly, there is little point in proceeding unless these are resolved prior to the meeting. You then need to prioritise the outstanding points and consider how you might trade these with the landlord.
You may also find your solicitor is concerned about an issue upon which you are prepared to take a commercial view or, even better, use as a concession to gain a more important advantage elsewhere e.g. your landlord may require a landlords break-clause if he should want to re-develop the property. You may take the view that it will not be the end of the world so long as you have adequate notice and perhaps the landlord will accept an internal liability only in exchange.
Gazumping
A feature of the leasing process is that agreements are made 'subject to contract' and they are thus not binding until the lease is signed. The potentially serious consequence of this is that your prospective landlord can accept a higher or better bid and leave you with abortive costs and a disrupted programme for moving. At worst a business can become homeless and I have no doubt this has, on occasion, caused business failures. If you absolutely have to move then it is worthwhile insisting on a 'lock-out agreement'. This is a contract that will give you an exclusive period within which to complete a lease. This will go some way to safeguard you from being gazumped but bear in mind you may have to pay for it.
Agents
The benefits of employing a competent agent are substantial. Besides giving you improved access to the market you will have the peace of mind that the property is inspected and enquiries made to check that it is a satisfactory acquisition. You can also take comfort from the fact that the terms have been negotiated from a position of strength based on a good knowledge of the market.
You should decide what style of agency is appropriate. If you are desperate to find premises and are prepared to commit a lot of your own time then you can appoint several agents on a multiple basis. This means you will only pay the agent who introduces the property you acquire and if you find your own property then no commission is paid. On the other hand if you have insufficient time to look for property then it will probably be more appropriate to appoint a sole agent on the understanding that you expect the agent to actively search for property on your behalf, and provide you with regular reports on progress.
The agent will be encouraged to provide this higher standard of service in the knowledge he is not in competition with other agents.
Conclusion
In various sectors of the London office market there is now a shortage of accommodation. Acquisitions can thus be very difficult to achieve. You will need to be fully prepared for the task. I therefore recommend that strategic planning with your agent and solicitor should take place well in advance of the move date, so that this critical part of your business is dealt with properly.
If you are looking for new offices you will no doubt have decided upon the physical characteristics of the property you are looking for including: type - new, old, air-conditioned, self-contained or part of a larger block; size and number of parking spaces; location and budget. But you may not have considered the terms of the lease that will best suit your business needs and, at the same time, be achievable bearing in mind current market conditions.
It is a mistake to leave this entirely to your solicitor or agent/surveyor. Firstly, they do not know your company's financial policies or it's plans. Secondly, and sometimes disastrously some practitioners work in a highly adversarial manner. They do not understand the win-win principle of negotiation which is particularly important in buoyant markets where landlords can be selective as to who they let their property to.
Two Critical Lease Terms
There are two important lease terms that should be carefully considered:-
1. How many years are you prepared to sign a lease for? And, are you prepared to sign a lease for longer than you may require, taking a commercial view that the lease be assigned or the property sub-let? and,
2. What level of responsibility are you prepared to accept for the maintenance of a property, both for dealing with it and paying for it?
If you want a short lease with few responsibilities other than to pay rent then, like it or not, you may well have to go beyond your 'comfort zone' to get the property you want. The reason for this is that your prospective landlord has a very different agenda. With shareholders, pensioners are assurance policy holders interests to think of, he is likely to want a long lease, say, 10 years minimum and he will want to pass on the whole of the responsibility for the property in the form of a full repairing lease or service charge to the tenant.
Given that a tenant and landlord usually have different views on these two basic terms, then the actual outcome of a specific transaction will depend on the negotiating strength of the parties. This, in turn will
principally depend on market conditions. In this respect you will no doubt be aware that the landlords position is improving as the surplus accommodation of the last few years is mopped-up by increasing tenant demand. furthermore, with very little speculative development in the pipeline, the market is likely to get tighter.
That said, you should also appreciate that much depends on the age and condition of the property involved, and it's location. There is a world of difference between a tip-top building in Mayfair, and a 1960's building in the poorer outer suburbs requiring refurbishment. In the former
case, you are very likely to have to sign a long lease and accept a full repairing liability. But in the latter case you can expect to negotiate a short lease and would be very foolhardy not to negotiate a capped
service charge.
There are of course other lease terms to consider such as rent review frequency and sub-letting/assignment but these probably are best dealt with in discussion with your surveyor or solicitor.
Put Your Best Foot Forward
These terms and quite a few others will have to be negotiated including, of course the rent and any tenants incentives/concessions such as rent free periods, but before entering negotiations it is helpful to prepare yourself to impress the landlord and thereby improve your negotiating position.
Firstly, if you are a financially strong company relative to the property involved then make sure the landlord knows this at the outset - give his agent copies of your corporate brochure and any other supporting material, ideally your Report and Accounts showing net profits after the prospective rent is paid of more than three times the prospective rent. The landlord will also want to know that you are a responsible tenant who will take good care of his property, and that you will pay the rent promptly. The best way to demonstrate this is with references from your bank and from a previous landlord. You will normally be required to provide these when terms are agreed so you may as well line them up and announce their availability at an early stage.
The London Office Guide is useful to help tenants find London office space to rent, London offices to let, central London offices to rent and both serviced offices and commercial property space. In addition to helping find London offices to rent and central London office space to let, it is useful for finding London serviced office space and business centres, London agent surveyors and information on the London office markets. Finding office space to let in London can be daunting. The right office space to rent in London is critical for many companies and if they don't find the right London office space to let their business and staff may be affected. Office space in London and London office property to rent can be expensive so companies need to shop around as much as possible. Overall, the London Office Guide is the most useful website and publication to help tenants find London office properties to let and central London commercial space. Especially office space in central London which includes City office space, Midtown offices and West End office space.
Included in the City of London are the postcodes EC1, EC2, EC3, and EC4. On the City fringe are London E1, London N1, London SE1, the southeastern part of London E2 and the southern part of London N7. London E14 includes office space to let in Canary Wharf and offices to rent in London Docklands. It is a separate office market but it competes for many of the same type of tenants the City does. Office space to let in London EC1 includes the areas of Clerkenwell, Smithfield and Farringdon which are east of Farringdon Road. Many media and hi-tech companies find these areas appealing. Offices to let in London EC2 include the areas around the Bank of England and Stock Exchange. Banks and financial companies of course prefer London office space in this postcode. Offices to rent in London EC3 include the area around Fenchurch Street and Eastcheap. Traditional home of insurance companies. Office space to let in London EC4 east of New Bridge Street include the areas around St. Paul's, Cannon Street and Blackfriars stations. London office space to rent is less expensive in the fringe postcodes. However, there is high quality London office space to let in London E1 around Spitalfields, Shoreditch and St. Katharine's. There is also new high quality offices to rent in London SE1 along the southbank and new office space to let in London N1 around King's Cross. There is also a range of inexpensive offices to rent around Angel and Old Street in London N1. Offices to let in London Docklands are mostly modern and the Canary Wharf office space to let is some of the best in all of Europe.
London Midtown is the area between the City and the West End. It is all of London WC1 and London WC2. It also contains London EC1 west of Farringdon Road and London EC4 west of New Bridge Street. Office space to let in London WC1 include offices to rent around Holborn and office space to let in Bloomsbury and also king's Cross. Offices to rent in London WC2 include Covent Garden office space to let and offices to rent around Leicester Square and the Strand. The Midtown office market is divided by Kingsway. Midtown office space to let east of Kingsway competes more with the City. Midtown offices to rent west of Kingsway tend to compete with the West End. Covent Garden offices to rent compete mostly with Soho office space while Bloomsbury offices for rent compete with office space in the West End north of Oxford Street.
The central or core West End of London office market comprises mainly London W1 office space to let. It also contains St James's offices to rent which is London SW1. London W1 offices to rent are in three geographical parts of the postcode. Mayfair, Soho and north of Oxford Street. Mayfair is the south west part of the London W1. Mayfair office space to let is some of the most expensive in the world. Soho is the south east part of London W1. Soho offices to rent have traditionally appealed to advertising and media companies. London W1 north of Oxford Street is divided into several office markets. There is office space to let in Noho which is immediately north of Soho. Soho office space to let is more expensive though. North of Noho are offices to rent in Fitzrovia which is the north east part of London W1. London W1 west of Portland Place is the remaining office market north of Oxford Street. It comprises mostly period office properties converted from residential.
The Greater West End of London includes offices to let in all of London NW1 and part of London NW8 to the north. To the south it includes almost all of London SW1, part of London SW8 and part of London SE11. To the south west all of London SW5, London SW6, London SW7, London SW10 and parts of London SW11, London SW15 and London SW18. To the west all of London W2, London W6, London W8, London W9, London W10, London W11, London W12 and London W14. Office space to let in London NW1 and London NW8 are offices to rent in Camden, Euston and Marylebone. Office space to let in London SW1 includes offices to rent in London Victoria, Belgravia, Millbank, Westminster, and Whitehall. In London SW8 and London SE11 are offices to let in Battersea and office space to rent in Vauxhall. In the south west there is office space to let in Chelsea, Fulham, Earls Court, Knightsbridge, South Kensington, Putney and Wandsworth. The office space to let in London SW11 also includes parts of Battersea. The Knightsbridge office space to let is expensive. Knightsbridge offices to rent compete with Mayfair. To the west there is office space to let in Paddington, Hammersmith, Bayswater, Kensington and West Kensington. There is Hammersmith office space to let in London W6 and Hammersmith offices to rent in London W12. London W14 office space to rent comprises mostly West Kensington.
In some cases serviced offices in central London or business centres in London might be more appropriate for some companies. London serviced office space is ideal for smaller companies. Serviced offices in London are usually available month to month and include furniture and services as well as the space. There is a range of London serviced office space available. From expensive prestige buildings to basic economical space. Before trying to find office space in London and especially central London office property to rent, tenants should refer to the London Office Guide.
