LEGAL Consumers have embraced online shopping, and many of us are now required to work from home. So it comes as no surprise that occupiers of commercial property are thinking twice about their requirements. With their front row seats, property experts Emily Wood and Ben Price reflect on how the pandemic is changing the future of the commercial property market.
RETHINKING YOUR PROPERTY NEEDS? The majority of office occupiers accept that a return to the densely-occupied office of the recent past is unlikely, and most commercial tenants are stepping back to evaluate the need for their larger space, or space providing less amenity. The common agenda of clients is to reduce or reconfigure portfolios or footprint: they are looking to relocate, co-locate, or re-organise to better suit their “new” needs. The pandemic itself however does not provide an automatic means of escape from most current lease obligations (see opposite). Understandably, landlords are
reluctant to simply agree that their tenants can walk away from such obligations; as well as the immediate impact on their own income and the value of their investment, the potential for following voids makes it a very unattractive option. A glimmer of hope for an occupier looking to end a lease may be a break option, and we have certainly seen plenty being exercised. But the timing and conditions to a break are vital for success, and taking professional advice is essential. There is also the possibility of finding an assignee or subtenant to take on surplus space. Any occupier considering
❛❛ A glimmer of hope for an occupier looking to end a lease may be a break option, and we have certainly seen plenty being exercised ❜❜
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their requirements should start with reviewing the options within their current leases. In terms of outgoings under leases, whilst the business rate holidays have been welcome, the opportunities for occupiers to reduce or suspend their rents during this time are slim. Turnover rents could be the only saving grace for some if trade has been impacted during the pandemic. Of course a landlord may agree to defer, reduce or even suspend rent for a period to avoid its tenant’s insolvency, or if offered a longer term or other incentive, and that is a conversation worth having; it is critical that any agreements reached are carefully documented.
CLAUSE FOR CELEBRATION?
Let’s look at some of the common clauses/concepts that tenants might look to for relief:
