Office Lease FAQ

Leased offices

Leased offices 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 3 to 10-year commitment. Unlike serviced offices, much of leased offices is delivered in “Base” 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 3 to 10-year term; leased offices do tend to be more cost effective and deliver bespoke private offices for a tenant 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 an 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 set up costs of acquiring leased space under these agreements are reduced as an 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.

What is a leased office?

When renting commercial office space, the contract between the landlord and tenant, or tenant and subtenant, forms either a lease (inc. sublease & assignments)

A lease is a legal agreement that permits a tenant to occupy property. A new lease can take 2 to 8 weeks to complete and usually requires a commercial real estate professional’s advice regarding its drafting. The process of drafting a lease commences once heads of terms, outlining the key terms/components within a lease, have been negotiated and agreed between the landlord and tenant.

What are the benefits and disadvantages of leased office space?

Benefits

  • Leases tend to be for a longer term and serviced offices shorter term.
  • Leased spaces tend to be more expensive to set up but once established are often more cost effective.
  • Leased offices provide a tenant with exclusive occupation – your own, private office.
  • Leased offices enable more control over costs and internal culture.
  • Leased office tend to suit more established businesses that are able to predict their headcount.

Disadvantages

  • Leased transactions typically take 1-6 months from commencement to completion. This can be shorter or longer.
  • Leased spaces are not offered on an all-inclusive basis. Rent and service charge being paid to the landlord and the majority of other costs are paid separately.
  • Most offices available to lease do not include the amenities offered within serviced accommodation and require a tenant to furnish and build their own break out areas, meeting rooms, kitchenettes etc.
  • Leases are less transparent than serviced office agreements.

How much does leased office space cost/what do I need to budget for?

The cost of a 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:

  • The larger the office the more expensive
  • The more “prime,” often central, the location the more expensive the rent and business rates
  • The longer the lease the larger the discount and rent-free period can be

However, it is also important to bear in mind the below to avoid any unpleasant surprises when acquiring leased office space:

  • Tenant fit out/furnishing works
  • Utilities – the service charge will often include utility bills for the common/shared parts of an office building but not the accommodation occupied exclusively by a tenant. Utility bills for individual office units are normally paid separately
  • Building Insurance – paid by the landlord and charged back to a tenant. Sometime included within the service charge
  • Internet
  • Legal Fees
  • Deposit – often required when a tenant does not pass the “Covenant” The Covenant Test requires a tenant to possess accounts that demonstrate their they have a strong financial history. The weaker the “Covenant” usually the larger the deposit
  • Restoration – at the end of a lease some landlords require a tenant to return the premises to the condition in which they found the premises. This involves removing all furniture and any partitions installed over the duration of the lease

Can small commercial properties be available for lease?

Yes. Commercial properties of all sizes can be for lease.

Are there different types of office leases available?

Yes. You can either take a lease direct from a landlord or from a tenant via a sublease or an assignment.

What is the minimum term for a commercial office lease?

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 3 to 10-year lease depending on the property

Can I negotiate a lease myself?

Although it is legal to do it yourself, it is highly advised you work with a commercial real estate professional to negotiate the lease on your behalf. There are many facets to a typical commercial lease, with a lot of variance between them. A commercial real estate professional can help you navigate the complexities of the lease and best protect your interests.