To flex or not to flex: comparing traditional offices with flexible office space

With Boris’ recent announcement of the immediate return to the office (and the end of restrictions completely shortly), many workplaces will now be looking at communicating and implementing their long-term office requirements to workers. However, many workers (particularly those in the start-up and entrepreneurial fields), are likely to be totally uncommitted to office space at this time. Not only do co-working spaces offer complete flexibility, but they often offer more modern spaces with better facilities than traditional office environments. The limited upfront capital expenditure on fitting out the premises is often an attraction, with everything being provided to plug into and use right from the word go.

There’s no doubt that many have missed the camaraderie that comes with office working over the past 2 years, and co-working spaces are no different. So what sort of things should you be thinking about when exploring whether to look for a more traditional lease or instead shift to flexible office space?

Flexible space

• In terms of formality, flexible working spaces tend to be occupied on a licence agreement, which is effectively a contract to use space in the building. These will be short agreements with an ability to terminate at short notice after an initial commitment.
• There are unlikely to be material costs outside the licence fee, which is normally an “all in” cost that gives you certainty financially.
• You will likely be asked to provide a deposit of some kind as security for your payment of rent and in case you damage the space.
• The space will be fitted out and ready to use, so your upfront capital expenditure will be limited (both on fit out and IT costs).

Traditional offices:

• If it’s a more permanent space that you are after and your business is at a stage where you are able to commit to renting a space for certain length of term, then you may wish to consider taking a lease of a defined space – whether that be a room, a floor or a whole building. This is a more formal basis of occupation and you will occupy the space exclusively, with the associated benefit that you can make the space your own.
• You will need to negotiate the terms of the lease with the landlord of the building, although agents often assist with this process. It would be sensible for you to instruct your own surveyor who will be able to negotiate the best deal for you, having regard to your objectives and market trends which dictate the terms of the lease such as the amount of rent you should pay and how long the lease should be.
• You will need to budget for the costs of fitting out the premises, which can be a significant up front cost. However, it does enable you to put your own stamp on the space. More and more landlords are offering fully fitted spaces on short term leases which can help you avoid this up front cost, although the convenience will be reflected in the rental pricing.
• Related to fitting out, it is very important to check connectivity of the premises. Wayleaves to install new fibre in particular can be time consuming to negotiate with landlords so you should consider early whether the building already provides what you need. 
• Check the planning position for the building, particularly where you have a slightly different offering – are you allowed to do under planning law what you want to do?
• If the building is brand new it’s worth asking the landlord what protection you’ll have if defects appear in their works – you won’t want to be paying to repair those.

Watch out for additional costs

• Pay attention to service charge provisions if taking part of a building – these can be significant annual costs on top of your rent and you should consider with your advisors whether it is possible to cap or limit your exposure to service charges – you will be expected, for example, to contribute to repairs to the structure. Whilst this is right and fair, pay attention to the condition of the building – is it possible that significant costs could be coming up in the near future? It is normally worth getting a surveyor to inspect the building and the plant and equipment on your behalf, although for smaller spaces this may not be worthwhile.
• You should be aware of dilapidations cost – effectively the ability of the landlord at the end of the lease term to require you to put the space back into a certain standard of repair. These costs can be significant so you should take advice before committing to the lease as to what is appropriate considering the age and nature of the building. For older buildings it may be worth exploring whether a schedule of condition can be agreed to limit your repair liabilities.

And if you change your mind?

• Even with a more formal arrangement such as a lease, it is best to keep your options open and ensure the lease includes a break (that is, a date the lease can terminate early). This can be a mutual break (i.e both you and the landlord have this option), or a tenant only break. Usually break clauses will only be validly exercised if you comply with the notice period (if there is one), and any other conditions attached to the break (such as ensuring you have paid up all rents on the break date and return the premises to the landlord in the condition required by the lease). Given what is at stake if the break is not validly exercised (usually the rent for the remainder of the term of the lease), we recommend that you seek legal advice in advance of exercising your break.
• In addition to having the ability to break the lease early, it is worth ensuring you can transfer your interest in the lease to another party or sub-let the space, should your plans (or financial position) change.

If you would like to know about your office occupier options or our wider Real Estate expertise, please contact Mark or Emma.