Do you stay in Flexible Space or Lease Office Premises?
If you’ve read anything about commercial real estate in the past 18 months, then you find it hard to avoid the noise surrounding the booming flexible office sector.
As the market offering has expanded service standards in general have improved dramatically, the hidden costs associated to the sector are more transparent and discount/free rental offers are everywhere. The success of coworking brands like WeWork offering inspiring places to work on flexible commitment licenses and Regional businesses like Bizspace investing heavily in their portfolio of 100+ locations have meant serviced offices are more affordable, accessible and desirable. However, it doesn’t stop the canny business owners being tempted by very attractive leasing rents, especially as even this market is flexing commitment periods.
Renting commercial premises for the first time can be a huge step for any business, not least the hefty financial commitment it can bring. And with the myriad of clauses and regulations in any lease, it’s easy to get trapped into a rental agreement for five years, or more when you may want to change location after two or three. And what if a business wants to change what they sell in their premises after a while – is there a restrictive clause in the lease that says you can’t?
To avoid potential pitfalls, here are some regulatory and statutory issues that should be considered when taking on a commercial lease of property for the first time.
Unless you’re securing something longer than 3 years, you’ve got to consider a number of costs associated to the Lease, primarily Fit Out, Furnishings, Removals and Dilapidations.
You will need to pay a number of fee’s; an agent typically charges 7% of the annualised rent, you will need a solicitor and stamp duty.
On first look at commercial lease with its economy of scale can look really appealing, often taken with ‘room to grow’. However, some landlords are also starting to 'pre fit out' space to appeal to a changing market, offering a bit more flexibility and reducing your start up costs.
Before taking space, check if the landlord will rent out by floor so when your business grows, your office space can too.
The UK has a lot of old buildings that are rented out as commercial premises so it’s imperative to check whether the premises have the most up-to-date infrastructure for your needs; for example, raised floors for sockets, suspended ceilings for cabling as well as the speed and adaptability of broadband and other key technology.
Be prepared for delays when asking for Wayleave’s to change access rights for technology services or alteration. Fit out processes are normally very quick once started, but it’s often getting the legalities agreed that takes the most time, commonly 3-6mnths from viewing to completion.
In a previous post I also wrote about IFRS 16, which is effectively an accounting ‘loop hole’ that will have a huge impact on corporate’s not disclosing long term rental debt as a liability. This loop hole closes this year, so this might affect your lending capability.
If you’d like to explore the options of taking a lease or other options work flexibly, get in touch.