by Philip Corcoran March-22-2021 in Property, COVID-19
COVID-19 has led to the rapid growth and normalisation of remote or blended working for many businesses.
These businesses will by now have adapted to the normality of having most of their workforce at home. One year into the pandemic, however, these businesses now must plan for a post COVID-19 world where employees are likely to expect more flexible working arrangements in their employment. An August 2020 Morgan Stanley report found that 82% of respondents would like to work away from the office environment more in the future.
Businesses may decide that the move to more blended work arrangements would mean they need to:
- reduce office space in some locations or
- increase office space in other locations.
In this article, we examine some relevant legal considerations for businesses if they are looking to exercise either option.
Reducing Office Space
Businesses may decide that they want to reduce their office space if they expect to have a larger proportion of their workforce working from home or working remotely following the end of the pandemic. The first place for a business to look if they want to reduce their space is their lease.
A business should review their lease with the following questions in mind to assess the options that might be open to them:
Is there an option to break or a break clause in the lease? If so, when does the option arise?
Many leases include an option to terminate or ‘break’ the lease at a specified point in time (e.g. at the fifth or tenth anniversary of the commencement of the lease).
If your lease contains a break option, you may be able to terminate your lease early and leave the premises which is the subject of the lease. If this option is open to you, it is likely the easiest way to exit or to hand back an entire premises. It is important to seek legal advice if you wish to exercise a break option as the process to break a lease can be quite technical where generally, the tenant must serve notice on the landlord and have complied with all or at least the material covenants of the lease.
Do I have the option to Assign the remaining term of my lease?
Generally, a lease will allow you to assign the remaining term of your lease to a third party with the consent of the landlord. The landlord is not entitled to unreasonably withhold consent. If you do not have the option to break a lease and you can source a suitable party to take on the remaining term of the lease, this can be a good option to exit from a premises.
Do I have the option to Assign part only of my premises?
You may wish to assign part only of your premises to a third party as you wish to stay in a smaller portion of the premises. Most leases expressly prohibit this and so this option will likely not be open to you unless you can negotiate a compromise with your landlord.
Do I have the option to sub-let my premises?
Most leases will allow you to sub-lease the whole premises to a third party with the consent of the landlord. The landlord cannot unreasonably withhold their consent. This would effectively make you the landlord to a new occupant of the premises. Your lease would still exist with the head landlord, and you would still be liable to pay the full rent under the lease to them. Most leases prohibit the subletting of part only of a premises.
Negotiation
If, after reviewing your lease, you find your options are limited, you should still approach your landlord to see if they are willing to negotiate and reach a mutually satisfactory compromise in order to assist you in exiting a lease or reducing the space you currently occupy under that lease.
Landlords and tenants should be aware of the Code of Conduct between Landlords and Tenants for Commercial Rents if any of the negotiations with their Landlord relate to rental payments.
Increasing Office Space
Businesses may also want to increase their office space to accommodate social distancing or if they have closed certain premises and need to reallocate staff to a central hub.
Businesses should consider either approaching their landlord or engaging a local estate agent in seeking to identify opportunities for new or expanded office space:
Approach your Landlord
Your landlord may have suitable space in the same development or nearby that could accommodate your needs. You may also have identified an empty neighbouring space that you wish to approach your landlord about.
Engage a local estate agent
A local estate agent will know the market and may know of local opportunities to take office space that may be coming available due to other businesses reducing space.
You may find the opportunity to take an assignment of the last few years of a lease term attractive as it would lower the risk of committing to a longer term in these uncertain times.
Next Steps
When you have come to a commercial agreement with a landlord regarding taking more space, your solicitor can then assist with putting that agreement in place, whether it is by Lease, Assignment, Sub Lease or short term licence.
It seems clear that remote working in some form will be here to stay in a post pandemic world. With vaccine distribution ramping up, it seems an ideal time for businesses to plan and decide what office space they will need to accommodate the future of remote or blended working arrangements.
For further information on any of the issues above, please contact Philip Corcoran pcorcoran@hayes-solicitors.ie from the Property team at Hayes.
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About the Author
Philip Corcoran
Philip is an associate solicitor in the Property team at Hayes solicitors. He has a range of experience acting for clients in varied transactions including the purchase, sale, mortgaging and refinancing of both residential and commercial premises.