INSIGHTS, RESOURCES & EVENTS
How long should I set my leasebreak?
Key Factors to Consider when signing a new lease
Signing a lease on a new office space is an undoubtedly important yet sometimes challenging task for many business leaders. Here are a few factors to consider to ensure you get the best deal to utilise as a platform for continued success:
As challenging as it may be, it is critical to plot out your growth projections over the next 3-5 years to establish the size of space you will require to facilitate your expansion plans. As a rule of thumb, you could use the ratio, 100 sq. ft. for every person.
Landlord Improvement Allowances
It is worthwhile having a conversation with the landlord to establish to what extent they are prepared to cover and/or allow adaptations to the space to suit your needs. Generally speaking, the longer the lease, the landlord will be more willing to negotiate on tenant changes to the space.
Finance & Budgeting
Signing a long-term lease makes it less likely that you will move again in the short-term. This makes it more predictable and easier to forecast the level of investment over the long term as well as reducing the time and money involved in moving again. However, a long-term lease is a significant financial investment for any business and can lack in flexibility in changing business conditions and indeed for many fast-growth start-ups.
Availability Of Space
If you are open to the option of a longer lease, this should open up more space options to you. The majority of landlords will look for the security of a longer term occupier for their spaces so the shorter and more flexible the lease, generally the tougher negotiations become and less options available to you.
negotiating a break clause in a space can give you more flexibility should business conditions change over time. However, it is important to understand the difference between a mutual-break clause and a tenant-only break clause. Some tenants may require a tenant-only break, to avoid the landlord being able to terminate the lease early, potentially jeopardising their business. Other tenants may be happy to accept a mutual break. There is more detailed and helpful information on this subject in the following link:
Ability To Sublease
Subletting is a simple way for a tenant to reduce their rent expenditure without having to uproot their business. Having a subletting agreement gives tenants flexibility to transfer rent to another occupier should they no longer have the need for the entire space and if they are tied into a long-term agreement. The majority of sub-leases forbid sub-letting. There is a good reason for that. As soon as more than two parties are involved, agreement becomes more difficult and conflict more likely. Furthermore, the head landlord, who of course owns the property, is less able to enforce their rights.
For businesses that expect a significant amount of growth in the relatively near future, a short-term lease provides maximum flexibility that allows a company to pivot accordingly when they outgrow the space. Startups, in particular, are drawn to short-term leases specifically because of this flexibility, affording them the ability to act and react to a volatile market that could provide either astronomical growth or catastrophic failure in a very short amount of time. This is also important for temporary or pop-up organizations that want to test the waters in a specific market before fully diving into the pool.
Having a project partner by your side to advise and give you the confidence on the correct space for your business needs is a worthwhile step to take. We would be delighted to assist you in any way possible as you take your next steps.
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