The definitive guide to breaking out of an office contract before the time’s up – by Adam Landau, DeVono Property
Property costs remain among the highest unavoidable commitments for any SME. The monthly rent, service charges, taxes and fixed-period contract lengths make the commitment onerous to businesses.
Specifically, ending contracts prematurely is expensive. Few SMEs hold surplus cash 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 this exposure to the penalties involved?
Here’s the definitive guide to understanding the process and saving cost:
1. Best advice on notifying landlords + agents
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.
2. What to honour, irrespective
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 centred 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.
3. Find a replacement!
If negotiated correctly, 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.
4. Why it all boils down to timing:
Timing is everything. Planning 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 co-ordinate 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.
5. Avoid a conflict of interest: only use a tenant rep!
You are a commercial occupier, so 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 landlords and this will negate any conflict of interests that are very common within the commercial property sector.
Adam Landau is a director of DeVono Property, which exclusively represents tenants within the office, retail and leisure sectors in London and the UK. DeVono Property holds the record for having acquired the highest numbers of offices for companies moving to and around London over the past seven years. For further information visit: www.devono.com.