Missed opportunities at end of term office lease
Within the office market each lease has a fixed lease term, in most cases five years at a time. If you, or your landlord, do not give notice, the lease will automatically be renewed under the then prevailing terms. Few companies choose to move every five years – we recently researched that an office tenant in the Netherlands stays in its location for an average of 17 years – but what is our advice when your lease term ends? Many tenants fail to utilize this moment, and that’s a shame.
Yes, the reality is different. Many tenants have no, or too late, insight into the end date of their lease term, or find out too late, and do get surprised by their landlord. Or they miss significant financial opportunities. In either case, this is unnecessary. When a lease expires, there are simply two options: you move or stay put. In this blog, we give you tips for both choices.
Stay or leave
That is the key question. But how to answer it? Sometimes the choice is obvious, and you have a clear vision of how you see your housing or office lease for the coming years. However, often a lot of homework and therefore time precedes this decision. And that’s our message: take the time to prepare properly. Too often, we get calls from tenants who have started the process too late and find themselves in an uncomfortable position. Or we get the message: “We can extend for five years, so everything is fine.” The office rental anecdotes are to die for, but significant opportunities are missed.
As a rule, we recommend starting to think about future housing two years before the end of the lease term. This sounds long, but be aware that you only have twelve months before you have to give notice and thus commit. If moving is a real (or necessary) option, you need this time. Consider drafting a program of requirements, perform market research, contract negotiations and a renovation to make a potential new location suitable for you.
Even if you do not intend to move, we recommend to too start thinking about the future of your office lease in time. Is the leased floor area still suitable? Are there things the landlord can or should improve? And the most obvious: am I paying too much rent?
Downsizing
Due to hybrid working, we see many organizations downsizing their office space. A new lease term is an excellent opportunity to reassess space requirements and perhaps make new agreements with the landlord about the leased floor area.
Building improvements in office leases
If you are considering to extend for several years, it is important that the quality is up to standard. The indoor climate, fit-out, sustainability, quality of the sandwiches – you name it. It’s good to make an inventory of possible improvements in advance. (We previously wrote a blog about who is responsible for the sustainability of your office, the office owner or the tenant? Read here)
Rent
Especially if you have been renting in the building for a long time, the rental price may have risen substantially above market level (this is the rent the landlord would receive if he were to lease the office to someone else). Also, consider the recent exorbitant price increases due to high inflation. No way market rents rose by 14% in a year!
Take these three issues into account in a contract negotiation and realise that landlords often have a strong interest of keeping you in the building.
Some final advice: the landlord will not alert you to the possibilities we’ve outlined above. So, make a note in your calendar two years before your lease end date and then read this blog again.
Finally
You can take these three matters into account during contract negotiations. Realize that landlords often have a strong interest in retaining you as a tenant in the building.
As a final tip: the landlord will not draw your attention to the possibilities outlined above. Therefore, mark two years before the end date of your lease term in your agenda and then review this blog again.
More information?
At Parella, we understand the challenges that tenants can face. Therefore, we are ready to help you minimize risks and find suitable solutions. Feel free to contact us for more information and advice.