There is certainly plenty to think about right now, including the plight of office tenants.
I thought it worth highlighting some further thoughts on the implications of the current crisis and some practical steps that you can take in relation to your office lease.
Understand what motivates your Landlord
One thing I would point out straight away is that you should remember that the focus of most Landlords will be cash preservation, just as it is for you. I am sure most will want to be seen to “play fair” in these circumstances and some may even treat this crisis as an opportunity to enhance their reputation with tenants. But in my opinion, most will prioritise the continuity and future growth of their rental income.
It is therefore unlikely in my view, that lease expiry and break option deadlines will be relaxed by landlords unless of course, it happens to suit them. This could force some tenants into making decisions they probably ought not to. If the “lockdown” in the UK continues into May and possibly June, the pressure being placed on unsuspecting and ill-prepared tenants will only increase.
Consider your supply chain
On a practical level, one cannot over-exaggerate the knock-on effect that this lockdown is having on the supply chain that surrounds the office sector. For example, some tenants right now need to affect vacant possession of their property in order to comply with the conditions of their break option. If they fail to adhere precisely to those conditions, they risk the lease with all its financial obligations, continuing for years to come. This could be catastrophic for some businesses depending on the scale and duration of the double-overhead that results.
Unfortunately, some businesses have no choice and they must move premises by a set date. However, they may be unable to do so because fit-out trades and relocators are simply unavailable due to social distancing restrictions. Temporary licences and lease extensions may therefore need to be negotiated. For others, the inability to draw on labour and materials at the right time could well influence their decision on whether to exercise a break notice and relocate to alternative premises. For those that have already served their break notice, the situation is becoming increasingly tense.
Force Majeure
If you think the scope of the ‘force majeure’ provisions within your lease are broad enough to capture the payment of rent and the service of break options, then you should consult a lawyer immediately to see whether this is the case. It would be unusual for a lease to contain such a broad definition, but you never know.
It is good to talk
If you know that you need to either reduce or increase the space you currently have, you may find that your landlord has some options available. This is because there are likely to be both winners and losers emerging from this crisis. This is likely to result in some “tenant re-shuffling” within multi-let buildings over the next 12 months. I also suspect there will be a significant number of redundant corporate leases brought to the market over the coming weeks. Some interesting opportunities are therefore likely to arise for tenants that are ready and willing to take advantage of them.
Explore your options
In the meantime, if you can’t wait for the dust to settle and need to explore your relocation options straight away, it is still possible to do that. For example, I am currently working on two time-sensitive relocation projects and we are managing to work around some of the key challenges. The most basic being property inspections which we now hope to conduct with our clients “virtually” by streaming videos shot by someone walking around the buildings alone.
Conclusions as of Monday 30th March!
My advice at this stage is therefore:
1. Do not assume you have a benevolent landlord;
2. Bring forward any planned moves in order to de-risk any potential supply chain issues; and
3. If you know that you need more/less space, let your landlord know now so options are presented to you as soon as they emerge.
4. Have your lease(s) reviewed by your lawyer
If you have any questions or need advice in relation to a specific lease or building, please contact Martyn Markland by email at mm@tenantag.co.uk.