Dion Panambalana lifts the lid on the top tips he is giving to office tenants – useful for a savvy investor keen to plot occupiers’ next moves.
Now that the leasing market is back in central London for office occupiers, here are the top five issues I would suggest tenants consider on a major office letting:
- Certainty on rent and rent at review – and what they are going to pay by way of service charge – have always been top of a tenant’s shortlist of issues that need to be addressed. Rent reviews are relatively rare because leases tend to be 10 years or less, unless they are major occupiers taking a lot of space. So it is quite common to see some sort of “fix” in years 5 to 10. Similarly with service charge, although that tends to be over a shorter period.
- If tenants are taking space that has been constructed to shell and core, I recommend they ask the landlord to put their fit out contractors onto their insurance policy, so that if they cause damage to the building, the landlord’s insurance policy covers it. Otherwise their contractors will need to take out their own insurance and add that to the cost of the fit out. There is a debate to be had between landlord and tenant on cost as typically the landlord might have built to a Cat A standard of finish anyway. Either way it is probably cheaper for the landlord to insure this than for the tenant’s contractors to have to bear it.
- The Model Commercial Lease suite of documents (“MCL“) has now launched and is intended to represent a fair starting point for landlords on all classes of institutional property. Many tenants can use the drafting in it to reflect their final negotiating position. A position that has gained a lot of traction in the last year or so is the good neighbour arrangements. This means that when a landlord is spending a tenant’s money, or making decisions that affect the tenant’s business at the premises, it must behave reasonably and not overspend, or unreasonably regulate. The MCL reflects current practice in this regard as these clauses tend to be accepted by landlords, if they have not already included them in their lease, without murmur.
- On many lettings, some sort of schedule to reflect reinstatement, rent review (if there is one) and dilapidations liability tends to be the norm. If tenants are taking new space this will be covered. But it is also important for older space, where tenants might want to limit their repairing liability and be as clear as they can on dilapidations and reinstatement.
- Finally the relationship between landlord and tenant, which has been changing to a customer-based relationship for many landlords over the last 15 years, has finally started to change in the legal market. So, tenants can ask for something that they genuinely need for their business and which the landlord can reasonably accommodate at no extra cost, but maybe with minor inconvenience. If the tenant can fully and fairly explain their position and is prepared to concede something else in return, I would advise them to ask and they may receive!
An earlier version of these top tips appeared in the Autumn 2014 EG London Investor Guide