Greater flexibility in office leases

Citation

(2001), "Greater flexibility in office leases", Property Management, Vol. 19 No. 2. https://doi.org/10.1108/pm.2001.11319bab.024

Greater flexibility in office leases

Greater flexibility in office leases

Keywords: Landlord, Lease, Offices

Landlords should consider agreeing to provide the capital cost of major tenant alterations in return for an increase in rent, while corporate occupiers should think about agreeing to pay for the right to a break in a lease.

These are just some of the ideas outlined by law firm, Nabarro Nathanson, at the launch of its "Offices Initiative", which is aimed at bringing all of those involved in the design, construction, ownership, investment and occupation of commercial property. The initiative is bringing together a core team of specialist lawyers who have acted both for leading landlords and some of the most significant corporate occupiers in the offices market.

The aim is to develop, promote and implement innovative ideas and structures to realise the common interests of the office owner and the office user. The initiative challenges both landlords and tenants to work together and face the realities of the modern economy and new technologies.

Geoffrey Lander, founder and past President of the British Council of Offices and one of Nabarro Nathanson's most senior practitioners, explained why a new flexibility is required from both sides. He said that: "The old maxim of 'location, location, location' will be replaced by 'consultation, consultation, consultation', especially in relation to occupier needs, both before and after construction". He predicts the market will see developments like post-occupation audits, shorter lease periods, "tenants' manuals" and the introduction of rent reviews linked to the occupier's profits or turnover. He also predicts that the introduction of the new Accounting Standard's Board's recommendations, which will require occupiers to show leases on their balance-sheets as either an asset or a liability, will result in widespread benchmarking of occupancy costs and that the occupier's quest for greater "corporate agility" will result in new, more flexible and imaginative leasing agreements.

His view was endorsed at the launch by Michael Griffiths, a director of Land Securities, who said: "We have for many years been extending our customer focus and believe we place a great emphasis on the importance of our customers and their requirements. Over the years, we have entered into many pre-let situations which have given us the opportunity to tailor our offer to meet client needs whilst ensuring we retain a commercial) acceptable building".

As the demand is growing for greater agility in leasing arrangements, Nabarro Nathanson is predicting that both investors and occupiers will want the certainty of easily ascertainable rental increases. It believes that this can be achieved in a variety of ways through fixed reviews, rents linked to profits or turnover, or index-linked rents. It predicts that these methods will increasingly replace the traditional five-year "upwards only" rent review.

The initiative is also suggesting a number of easy and practical steps in which the landlord-and-tenant divide can be bridged. For example, it is suggesting that landlords can provide tenants with greater flexibility by:

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  re-energising rather than demolishing redundant buildings by investing in technology such as bluetooth (wireless technology which will help attract tenants back into such buildings);

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  provide services which are meaningful, such as telecommunications connections in common parts, cash machines and a welcoming concierge.

Likewise, tenants are advised to offer greater flexibility in their dealings with landlords by:

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  accepting a longer term lease in return for a fixed rent;

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  agreeing to contribute to a sinking fund in return for the promise of a defined investment in the building;

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  releasing a landlord from liability automatically on a sale.

Ann Wright, the commercial property partner at Nabarro Nathanson, responsible for running the initiative, said: "There is a new realism in the corporate occupiers sector. Both landlords and occupiers are beginning to understand the commercial benefits both sides can realise from flexibility and a new 'enlightened self interest' with regards to lease agreements".

Landlords and corporate occupiers seeking information on the Offices Initiative should contact: Ann Wright at Nabarro Nathanson on: 020 7524 6000 or by e-mail at: a.wright@nabarro.com