For more established businesses that are looking for exclusive occupation over a longer term, leased office space may be the best option. Here’s everything you need to know about leasing office space in one simple guide.
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When renting commercial office space, the contract between the landlord and tenant, or tenant and subtenant, forms either a lease (including subleases and assignments) or a licence.
A licence is a simple, short contractual agreement that outlines the terms upon which a tenant (licensee) is permitted to occupy the property. A licence can be agreed and put in place within a short period of time and typically does not require a tenant to seek legal advice.
On the other hand, a lease is a longer and more complicated legal agreement that also permits a tenant to occupy the property. A new lease can take anywhere between a couple of weeks to a few months to complete and usually requires specialist advice regarding its drafting from a real estate lawyer. The process of drafting a lease commences once heads of terms, outlining the key terms and components within a lease, have been negotiated and agreed between the landlord and tenant.
Fundamentally, a lease provides a tenant with a greater amount of legal protection than a licence.
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Serviced offices typically provide “plug and play,” fully fitted out and often furnished workspace for organisations ranging from startups to publicly traded companies. These offices permit flexibility via shorter, often rolling contracts that can be agreed and sourced quickly. The main benefits of this type of office are transparency via all-inclusive monthly costs, flexibility, and lower set up costs in comparison to leased accommodation.
Serviced offices are comprised of private offices, fixed desks, hot desks and coworking space.
Leased offices are slightly more complex, as a lease can be granted either direct from a landlord or from an existing tenant via a sublease or an assignment.
A new lease direct from a landlord is typically taken for a five to ten-year commitment with flexibility being achieved through the inclusion of break options within a lease. Unlike serviced offices, many leased offices are delivered in “Grade A” condition. This means the premises require a tenant to furnish the premises and install their own internet connection, cabling, and partitions for meeting rooms, kitchen areas etc. The initial set up costs are higher for leased offices when compared to serviced offices. However, given that most leases direct from a landlord are taken for a five to ten-year term, leased offices do tend to be more cost effective and deliver bespoke private offices for a business which is very much their “own space.”
Subleases and assignments are granted by a tenant in possession of an office lease. A sublease is a separate contract that largely reflects the terms of the original lease, whereas as an assignment is the transfer of the original lease to a separate party. Put simply, an assignment involves changing the names on the original lease contract, meaning the incoming tenant (assignee) agrees to all the terms under the original lease.
Subleases and assignments typically allow a tenant to acquire leased premises on a shorter, more flexible basis. The initial setup costs of acquiring leased space under these agreements are reduced as existing fit out and furnishings can be inherited. Subleases and assignments also provide opportunities to find cheaper, more affordable office space when the rent under the existing lease is less than or more than the market rent. Both subleases and assignments require the landlord’s consent.
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The cost of leasing an office is dictated by the size of the requirement (sq ft/sq m), location, and lease length.
These fundamentals are worth bearing in mind:
There are three main costs associated with leasing office space:
These costs will reflect approximately 70-90% of the total outgoings on an office.
However, it is also important to bear in mind the below to avoid any unpleasant surprises when acquiring leased office space:
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Our in-house property experts are here to guide you on everything you need to know when it comes to finding a leased office, from advising you on strategy, to independently sourcing bespoke options, to negotiating the best deal on your behalf.
Yes. Properties from 100 sq.ft. to 1 million sq.ft. are available and capable of being leased.
Yes. You can either take a lease direct from a landlord or from a tenant via a sublease or an assignment.
There isn’t one. If you are taking a lease direct from a landlord, most would expect and wish for a tenant to sign up to a five to ten-year lease depending on the property.
With a lot of available accommodation, most landlords will be willing to grant:
It is important to bear in mind that all the above vary with each building and landlord. For example, a landlord is less likely to grant a five-year lease with a tenant only break option in year three on a brand-new landmark development.