5 tips to break out of your office contract early
By Adam Landau
Rent is one of the largest and most onerous costs for SMEs. Here are five tips to break out of your office contract early, should you need to.
The monthly rental commitment in addition to service charges and taxes can cripple a business if it needs to move or doesn’t need the space any longer.
Breaking contracts prematurely is expensive. Few SMEs hold emergency funds for this eventuality. They have to answer to landlords, their agents, and the binding contracts set in place. What if there was a way to minimise the risk?
How to notify agents and landlords
If your lease was negotiated via a property professional, there should be some break option clauses which could be activated at certain preset dates. Most breaks will incorporate a six-month written notice period, advising your landlord of your wish to leave. Don’t miss these opportunities to re-asses your office needs.
Don’t shirk your responsibility
A contract is enforceable, so negotiating the terms in your favour for any elements within your lease, will protect you and your business. Any point not addressed within your lease will most likely work against you when you try and exit the property. Areas of confusion are often centered on the condition of the property when you hand it back to the landlord, which can be very costly. Think ahead and think of the worst-case scenario in all events.
Offer it on first, yourself
In most cases, you should have the rights to leave your office early by finding an alternative occupier willing to take your lease via a sub-lease or transferring your lease. However, there are conditions set against these exit routes which need to be fulfilled, such as landlord’s approval of the new tenant in terms of their strength to keep up to date with their lease obligations as well as the financial elements that could differ from what the original lease offered.
Getting this protocol wrong will result in a landlord declining a replacement occupier, which would naturally be a waste of time and money in pursuit of your exit. Financial viability of a business is one of the most important aspects that all landlords will consider in these situations, so make sure your property advisor thinks ahead with these matters.
Planning and timing is key
Prepping for the disposal of your current office, while also lining up the completion of the lease for your new lease, is a complicated process. Make sure you use the same solicitor for both transactions as they will be able to coordinate this.
Make sure there is a clear breakdown of expected timings within the Heads of Terms for both transactions and make sure your agent and solicitor are keeping all parties in line with these on a weekly basis.
Plan your interior changes that you require as soon as your solicitor starts working on the lease. This also works in accordance to the new company taking over your lease as this is often a main cause of delay as no changes to the property can take place without landlords’ consent.
Ensure you’re truly represented for a change
Avoid the conflict of interest, in your favour for a change! As a commercial occupier, it is vital that you are advised by property consultants that only ever act for occupiers. The aim of a tenant-focused advisor is the exact opposite to that of a landlord’s, and this will negate any conflict of interests that are very common within the commercial property sector. The majority of agents work for landlords, so be well aware of this conflict and turn the tables in your favour.
Adam Landau is a director of DeVono Property.
10 things entrepreneurs want to see in the Budget
By Jack Torrance
With George Osborne set to deliver his 2014 Budget on Wednesday, we asked readers what their business would like to see him announce.
From tax cuts to innovation incentives, this is what they told us:
1. Support for innovation
Innovation is a driving force behind economic growth, helping us to compete on the international stage.
Adam Ludwin, chief visionary officer and co-founder of ad-tech company Captify, said: “If I was writing the budget I’d look to train banks on how to deal with innovation and entrepreneurs, especially in technology sector, where a number of entrepreneurs seek funding from venture capitalists because of an inability to secure the right level of support and financing from the banking sector.”
Giles Palmer, CEO of Brandwatch, said: "Innovation, and the ability to get back up if things don’t quite work is vital so we absolutely need to maintain the R&D tax credits relief but also increase the grants we offer to the technology and creative industries."
2. Retaining or extending Entrepreneurs' Relief
Entrepreneurs' Relief gives business owners a reduced rate of capital gains tax - 10 per cent - up to a value of £10m when they come to sell the business.
Brandwatch CEO Giles Palmer said: "I would like to see the chancellor increasing the entrepreneur's relief limit to encourage companies that are doing well to really push the boundaries and think big without having to worrying about the tax implications."
Paul Lees, CEO and founder of Powwownow, would go further, suggesting it could also be applied to income tax.
He said: “This would mean rather than paying 45% tax, business owners would effectively pay 10% until a limit was reached. This would enable more people to start up SMEs which currently employ 14.4 million people in the UK and have a combined turnover of £1,600 billion.”
3. Support for businesses outside London
There’s much talk of an economic divide between London and the rest of the country – a divide which threatens not just sales but also staff retention, investment prospects and infrastructure.
John Styring, CEO and founder of Northampton-based publishers IglooBooks, said: “The threat of a national divide between London and the rest of the UK means a lack of investment in the businesses that make up the regions will damage our international competitiveness and drive business investment overseas.
“Supporting business in local communities can offer jobs and growth to the surrounding regions and bring innovation and new thinking to the wider economy. The Government must do more to offer financial support for smaller businesses outside of London to help them break into a competitive market.”
4. Making it easier to get off the ground
A number of people said that businesses need more support for their difficult early years.
Olly Olsen, co-founder and co-CEO of The Office Group, said: “In the first few years of their existence, when money is tight, there should be an exemption from tax for start-ups. If the tax burden is decreased then the additional funds could be invested into expansion and the creation of new jobs.”
Adam Bromley, MD of PIQWIQ Publishing, said: “Those initial months are the hardest of all, with many business owners working unpaid, living on credit cards and operating with funds borrowed from friends and family.
"Every single penny counts and every penny that leaves the business in corporation tax is money not available for investment, expansion or even the daily challenge of cashflowing existing operations.”
5: Encouraging more people into entrepreneurship
Britons have more of an appetite to start their own business than ever before, but some entrepreneurs told us we can do even better.
Stuart Miller, CEO and co-founder of ByBox, said: “Entrepreneurs are the key to a successful economy. The best time to start a company is when you are young. But young, bright people feel compelled to go to university and leave with a £50k debt. How will this help them start a company?
“The government should do two things. First – offer school leavers the same financial support as a student loan but to be spent on launching their own business (with similar payback terms). Second, agree to pay-off student loans for graduates who start a company straight from university, providing they employ at least five people within one year.”
Serial entrepreneur Stephen Fear said: “I would like to see a committed emphasis on creating more entrepreneurs from within the ranks of the currently unemployed, perhaps by redirecting some unemployment benefit into 'self employment benefit.'
“We must stop allowing people to waste their lives and redirecting money into building an enterprise culture would be a better way to use funds being paid out anyway. "
6. Energy market reform
Rising energy costs are a challenge for all industries. In its 2014 budget submission EEF, the manufacturers organisation, called for largescale energy market reform, including a freeze in the Carbon Price Floor.
EEF Chief Executive, Terry Scuoler, said: “Rising energy costs represent a major threat to growth and could damage efforts to support and sustain long term recovery.
The UK cannot afford to pile even more unilateral costs on the manufacturing sector which is key to developing the UK’s longer term growth and stability.
Of course it’s not just gas and electricity which are expensive – any business which uses a fleet of vehicles will know that the cost of petrol and diesel can be extortionate.
Charlie Mullins, CEO of Pimlico Plumbers, said: “I’d like to see the Chancellor introduce a targeted cut to the duty on diesel fuel to boost British industry. It literally is the fuel that drives UK business and the blood that pumps through the veins of the country’s infrastructure.
"Taking a slither of tax off diesel would pay dividends for the Government as it would benefit from increased productivity and therefore higher tax receipts.”
7. Help to access the right talent
We hear a lot of complaints about the quality of the UK workforce and received a number of suggestions for how access to talent can be improved.
Paul P Rose, FloD Chief Executivve of Rixonway Kitchens, said: "We would like to see the government acknowledge the importance of apprenticeships by investing further in programmes and to ensure their success it is vitally important that further financial support is given to businesses considering employing apprentices."
Richard Dorf, MD of PXTech, said: "In the long-term, the education system needs to drastically improve its ability to produce high achievers in the areas of science and technology, we are slipping down the tables in relation to other nations and this does not bode well for future competitiveness.
"Also, focussing on teaching innovation throughout school and the higher education system will do much to help us remain competitive against the emerging economic powers."
Ed Bussey, CEO and founder of content marketing agency Quill, said: “The process for sponsoring skilled migrant workers from outside the EU also needs to be simplified so that fast-growing businesses — especially in the tech sector — can get hold of the talent they need to fuel their expansion.
8. Support for the High Street
Osborne used the Autumn Statement last year to unveil a business rates cut for small retailers and the continuation of a two per cent freeze on rate rises for all businesses, but more needs to be done to make the High Street thrive.
Dr Richie Nanda, global chairman of Shield Group, said there should be a continued freeze of business rates for small retailers.
He said: "There are more than 150,000 small retailers in the UK, and this support would make it simpler and easier for start-ups and business to operate and encourage entrepreneurship. Small businesses are the key to our future.”
Adam Landau of DeVono Property thinks that leisure businesses, including restaurants, health clubs and food businesses are the future of the High Street.
He said: "Not only will this enable high streets to become the social hubs they once were, it will create employment, act as way to get people healthier and improve the desirability of our cities and towns.
"By putting a realistic investment budgets into councils we should be offering nationwide free parking in town centres, and have significant incentives in place to start filling up the high street with business that will succeed."
9. Export support
There's much talk about how the UK can boost exports, with the Government aiming to double the total by 2020. With recent ONS figures showing exports at a 19-month low, what can be done to turn the UK's fortunes around?
Rupert Lee-Browne, CEO and founder of Caxton FX, said: "I would like to see the Chancellor reduce the complications in export licensing and encourage alternative sources of finance to help fund exporters, such as offering favourable credit terms to overseas buyers of UK goods and services. This would go a long way to making them more attractive to potential exporters."
David Hathiramani, co-founder of A Suit That Fits, suggested that a reduction in employers' National insurance for businesses who are taking on staff to increase their exports could work.
10. Help for manufacturers
Amit Bhatia, chairman of Hope Construction Materials said: “I’m a firm believer in British manufacturing and think the government should seek to stimulate demand in the economy to allow UK firms to do what they do best – make things, innovate, invest and develop.
“Suppliers to the construction industry have been hit by a range of tough and rising regulatory costs which if continued will hinder essential production. Instead we need policies which ensure steady, sustainable growth, allowing us to invest in both plants and people in the long term, increase economic output and reduce unemployment.”
DeVono founder Adam Landau on Donald Trump, online money lending and dreams of being CEO of Apple.
Name: Adam Landau
Company: Office space providers DeVono Property
First job: Buyer for United Overseas Group Plc – I was tasked with heading up a new consumer software wholesale division for the group who were the UK's leading purchasers of overstocks. My aim was to purchase all remaining out of date titles at incredibly low prices with the aim to re-distribute them throughout Europe to leading multinational retailers such as Tesco, Morrison's, Toys R' Us, Dixons, etc. It was a very exciting role as I was purchasing multi-million pounds worth of stock from multiple publishers while also selling them to well-known international groups.
Dream job: CEO of Apple Inc.
Car: Mercedes E Class.
Economy, business or first class: Business class; economy is tight and first class overpriced.
Most extravagant purchase: My current house, very recently purchased!
Most-played song on your iPod: Through and Through by Life of Agony.
Best business book: Gerald Ronson's Leading From the Front.
Worst business moment: Having to make someone redundant at the start of the credit crunch (only time it has ever happened).
Proudest business moment: Breaking the record for the largest number of office acquisitions in London ever (2011). When we started, we were given a tough time from the industry because we exclusively represented tenants – this went against how the property market traditionally operates, yet it was this factor which allowed us to be the market leading office acquisitions agency.
Your business mentor: Donald Trump.
Next big thing: Online money lending for businesses.
The 15 hidden costs of moving offices
It can be expensive to move offices. Here are 15 hidden costs associated with the big move.Adam Landau
Moving office can be a business’s most expensive costs. While there are numerous services available to make the move hassle free, there are hidden costs attached moving which many businesses are unaware of.
Here are the the fifteen hidden costs associated with moving offices:
1. Stamp duty
Stamp Duty Land Tax (SDLT) is charged on land and property transactions in the UK. The tax is charged at different rates and has different thresholds for different types of property and different values of transaction. Other factors within a lease (such as incentives) have a bearing on the level of SDLT due.
2. Landlord's approval for alterations
Cost? Estimated between £750 - £3,000.
In a majority of cases, before a tenant may undertake any non-structural alterations to their office space, they must receive formal consent from their landlord for such works. A "License for Alterations" is then appended to the lease once the landlord approves all plans for alterations.
Cost? Estimated between £5 - £20 per sq ft of the net floor area.
A tenant’s repairing obligations under either an FRI or an IRI lease are often referred to as dilapidations. In simple terms, this involves the tenant reinstating their office in to the exact condition that it was in when their lease first completed.
4. Service charge increases
Cost? Estimated increases between five and ten per cent per annum year on year.
The running and repairing costs or "service charge" of any building are subject to annual review and can actually go up, or down.
5. Refurbishment / Fit out costs
Cost? Estimated between £15 - £65 per sq ft of the net floor area.
A variable cost entirely dependent on the needs of an individual business and the level of quality that they require from their office design/fit out.
6. Survey of the premises
Cost? £750 to £5,000, dependent on size and condition of premises.
A building survey is recommended to assess the structural integrity and services of the building. A survey is particularly necessary if the lease will be a fully repairing and insuring one (FRI). Any issues that the survey brings to light will then need to be dealt with in advance of the lease completing by the tenant’s representatives and advisors.
7. Schedule of Conditions (where appropriate)
Cost? £1,000 to £2,000.
If the condition of an office at the start of a new lease is anything other than fully refurbished, then that condition should be documented by a series of photographs with written commentary against them. This Schedule of Conditions needs to be agreed by both tenant and landlord and appended to the lease before its completion.
8. Superior landlord’s consent to approve sub-let / assignment of a lease
Cost? £500 to £3,500.
Any subletting or assignment of a part or entire demise/lease requires the consent of the superior landlord before it can legally complete. The superior landlord usually has an obligation to not unreasonably withhold or delay their consent, providing that any potential restrictions regarding subletting or assigning within the head-lease have been met and adhered to.
9. Rent reviews (every five years based on a new lease)
Cost? Dependent on market conditions.
Leases that extend beyond five years will usually be subject to a rent review every five years. This applies to both new leases and to subleases. At the time of review, advisors to the landlord will inform them of relevant evidence about available and completed deals on offices in comparable buildings.
Cost? Payable on rent, service charge and deposit (where applicable) for VAT registered buildings at a current rate of 20 per cent.
The great majority of buildings in the UK are elected for VAT. In certain cases a landlord may wish to not elect their building for VAT, usually to make their building more appealing to occupiers that are unable to recover VAT. Buildings located in the EC3 postcode of London are the most relevant example, due to the larger number of commercial occupiers from the financial sector (that are unable to recover VAT) being based here.
11. Building’s and terrorism insurance
Cost? Estimated £0.50 to £1.00 per sq ft.
It is a landlord’s responsibility to insure the building, though they then recover these costs from the tenant(s) of the building sometimes in the form of service charges.
12. Contents insurance
Cost? Relative to the contents of your office and the insurer.
Insuring the contents of a specific demise is the responsibility of the tenant and covers any losses / damage that may be caused by circumstances such as theft and water damage.
13. Rates increases
Cost? Rateable values can be seen here, and apply every fifth year, with the most recent April 2010 and based on office rental values two years prior to the fifth year re-valuation.
The business rates payable are derived as a percentage of the Rateable Value (RV) of a building and then scaled against the percentage of occupation within a building that a tenant leases. Currently the rates payable in England are based on 43.3 per cent of the RV. In the City of London they are 43.7 per cent.
14. Solicitors' costs
Cost? Estimated £2,000 to £8,000 (potentially higher depending on size of office and structure of the lease term).
Usual practice in respect of any new lease direct from the freeholder of a building is for the tenant and the landlord involved to cover their own legal fees incurred. It is a point of negotiation over who pays the landlord’s legal and also professional (such as surveyors) costs.
15. Acquiring agent’s fees
As with any professional service, it is a simple untruth to term agents’ fees a cost, both landlord and tenant pay their own fees.
Adam Landau is a co-director at DeVono Property.