24 March 2020

Do I have to retain my lease?

Will this crisis make companies think harder about how much office space they need, as people adjust to remote working? There has already been a push for corporate office occupiers to reduce the size of their portfolio. Companies have come to realise that the rent and business rates they pay for their office space is their largest outlay and that the practical need to keep the space lit and warm even when many desks are empty does not stack up.

Hot desk protocols

Accordingly, many companies introduced mandatory hot desk protocols, encouraged home working or flexibility to make a more efficient use of their space. Coupled with this, the office market saw a lot of new availability of these second hand spaces as occupiers, then chose to take leases of smaller spaces or to exercise break options.

Fast forward to our country in lockdown, and even those employers and occupiers who were sure that their staff needed to operate in a face to face environment or that their processes did not lend themselves to remote working, are having to make adjustments. Many office buildings are currently operating with a skeleton staff or are closed completely.

‘New normal’

Once the government advice and the economy allows us to return to a ‘new normal’, we have to consider what that will look like. If office space has been empty for weeks or months but the business has continued to operate, this will inevitably lead to the question, do we need that building?

It is likely that more tenants will look to exercise break options and that there could be a spike in tenants agreeing surrender deals with their landlords. Whilst many of these may be resisted by landlords, it could present new opportunities where the landlord was looking to redevelop. If a surrender deal also includes a dilapidations settlement or a surrender premium, this could provide a cash injection that would otherwise not be available.

Certainly we can expect a shift in what the office market needs going forward, and a move to more flexibility in new leases.

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About the Author
Natalie Minott, Partner

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