Adapting commercial premises to the “new normal”

8th July 2020

The lockdown measures designed to contain the spread of COVID-19 forced the closure of all non-essential workplaces, resulting in staff from many industries working from home for a prolonged period for the first time.

As the UK eases lockdown measures, businesses are having to consider their ongoing property needs. Many businesses will need to adapt their workplaces to implement social distancing measures which may include taking on additional space or making physical alterations to their properties, while others will be wondering if they really need an office at all.

So what are the options for tenants considering the above changes?

Alterations

Many tenants will find that they have to reconfigure their workplaces in order to comply with social distancing guidelines and keep staff safe. Most leases restrict the extent to which tenants can make external and internal alterations to their premises, so it is important to carefully check the terms of the lease and seek landlord’s consent (if required) to any physical alterations to the property before making any changes.

Expansion

Some tenants may find that they need to expand their space in order to allow staff whose duties can’t be performed from home to socially distance themselves in the office. In this scenario, tenants may agree new short term leases of adjoining or nearby units, either with their existing landlord, with a new landlord, or they may agree to sublet space from a neighbouring tenant.

Tenants looking to expand may also wish to take an assignment of a lease from someone looking to dispose of their property completely. Tenants taking an assignment of a lease may be asked to provide a rent deposit as security for the performance of their obligations under the lease, or to find a guarantor for the performance of the lease obligations.

In taking on a new lease, it is important to investigate the property and to fully understand the terms of the lease. We would also recommend that anyone standing as guarantor for a tenant taking an assignment of a lease should first take legal advice on their obligations as guarantor.

Downsizing

For many companies, working from home has been a great success with little or no effect on productivity. Some business have even found employees to be more productive working from home.

This is likely to leave many businesses questioning if they really need, or can afford, to rent expensive business premises, or if some degree of permanent home working should be implemented going forward.

So, what are the options for tenants looking to dispose of surplus space?

Most leases allow tenants to sublet the whole of a premises, and some leases allow tenants to sublet part (although this is less common). The lease may require consent from the landlord to any proposed subletting and this should be checked. An ability for the tenant to share space with another party is often allowed, as long as a landlord/tenant relationship is not created between the sharing parties. Again, the terms of the lease must be checked.

Another option is to assign the lease to a new tenant. In almost all cases, consent to an assignment will be required from the landlord, and many outgoing tenants will be asked to guarantee the incoming tenant’s performance of the lease obligations. As mentioned above, it is important to fully understand the obligations of a guarantor before committing to a guarantee.

Another option is to negotiate a surrender of the whole or part of a premises, depending on the tenant’s space needs. In the absence of a pre-existing agreement to surrender, landlords are not obliged to agree to a surrender but may be willing to do so if they are confident in their ability to re-let.

The final option for tenants looking to downsize is to exercise a break clause (if they are lucky enough to have one in their lease); and either relocate to smaller premises or transition to full-time home working. Successfully exercising a break can be tricky, as any failure to comply with the conditions of the break clause can mean that the break notice fails to take effect and the opportunity to break the lease is lost. For this reason, it is vitally important that tenants seek legal advice on how to correctly exercise a break right and bring their lease to an end.

 

If you would like more information on the content of this article, please contact Caroline Daly on 07902 341283 or by email at Caroline.Daly@murrellassociates.co.uk. The information provided in this article is a summary for general information purposes only and does not constitute legal or other professional advice and cannot be relied upon as such. Any law quoted in this article is correct as at 07 July 2020. Appropriate legal and financial advice should be sought for specific circumstances before any action is taken.