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Shrinking Commercial Footprint in the Era of WFH

Posted by Andrew Grima on 29 Jun 2020

Based on my recent conversations with many business owners, the onset of working from home (WFH) has led to a rethink on the need for the extent of office space that was needed in the past. As the workforce is now getting used to and embracing WFH, businesses are now seeing that their existing footprints are becoming redundant in some way. 

So, if you are pondering over how to reduce your footprint when you have entered into a long term lease, I have come up with a checklist which may help you as you cannot simply walk away from a lease that you have signed.

Subletting

I have found over the years that a popular solution for a business when seeking to reduce their footprint is simply to offer to the market the whole part of their premises through a sublease or license arrangement. 

Some key points to consider are as follows:

  • check your lease to see if you can do this;
  • check what restrictions there are on your ability to sublease or license;
  • understand the consent requirements of your landlord; and,
  • please remember that you will still be liable under your lease even if you sublease or licence the premise.

Assignment

You may be able to assign your lease to a new party, which would mean that someone else would inherit your obligations for the remainder of your term. Some key points to consider are as follows:

  • you need to look at your lease to see what the conditions of consent to the assignment are;
  • you need to ascertain what information your landlord will require to assess any potential assignee;
  • find out if your landlord will seek additional security on top of what you are already providing - cash deposit, bank guarantee or personal guarantees;
  • you will need to try and negotiate to be released upon assignment (both the tenant entity and any guarantor); and,
  • please consider whether any incentives that were provided when you entered into the lease may be subject to a clawback in the event of assignment.

Surrender
You may be able to negotiate a surrender of lease, which would mean you are released from all future obligations at a point in time. Some key points to consider are as follows:

  • what is the remaining term under your lease - this will impact on how much of a surrender payment you will need to make;
  • you will need to consider what you make of the obligations are under your lease - this will also be a driver of what you have to pay the landlord in the event of a surrender; and,
  • consider whether any incoming tenant would require items of fit out, furniture or equipment - they may pay for this.

The last few months have had a major impact on our society, the way we live and definitely the way we work. The feedback I am getting is that WFH is going to have a profound impact on the commercial property market and therefore if you are a business that has an expensive rental component, you will need to consider the above if you wish to reduce your rental costs.

If you would like to discuss in more detail the possible solutions outlined above, please do not hesitate to contact a member of Coleman Greig’s Commercial Property team. We are more than happy to steer you through these solutions and if you have already negotiated a deal, we can also assist you with ensuring you have an appropriate agreement in place.

 

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