How do I lease an office for my business?

What is a commercial office?

A commercial lease is a legal agreement that is made between a landlord and a tenant which outlines the terms of the rental of the property. Commercial real estate lease can cover the rental of the whole property or a portion of the spaces for rent.

The commercial property market is huge, and The Property Data Report, published by the British Property Federation, estimates that 45 million square feet of commercial property are built each year. Leasing your office space has never been easier or more accessible, commercial offices come in all shapes and sizes, including the traditional office set-up which is found in city centre locations through to farm buildings that have been converted into office spaces with a variety of lease terms available.

Included in the lease are details on the type of business activity the property can be used for. If the property is used for anything other than what is stipulated in the lease, you could be breaking the rules of the lease, and either be fined or be asked to leave. The lease may also include a ‘break clause’ which allows the landlord or you as the tenant, to end the lease process early. This can be useful if you find after a few years that your business needs have changed, and you need somewhere bigger or smaller.

Summary of key clauses in a lease

When leasing office space, several clauses will be contained within the commercial lease. Here is a breakdown of some of the key lease terms you need to be aware of:

• Heads of Terms – is a separate document that details the main clauses which have been agreed between yourself and the landlord. The information contained in this document is used to prepare the lease.
• Parties – this refers to the people involved in the lease. The landlord will be referred to as the ‘lessor’ and the tenant or business owner as the ‘lessee’. It is advisable to familiarize yourself with all parties involved in the lease process – such as building owners and real estate brokers.
• Rent – this is the money you pay to the landlord for leasing their property. The lease rents tend to be calculated on an annual basis which is either paid monthly or quarterly in advance.
• Rent Review – long leases tend to include a clause which states that rent reviews can be undertaken at specific stages. The clause will detail the frequency of these.
• The Term – this is how long you’ll be renting an office for. Short term leases typically run between 1-3 years. While a long-term lease is anything from 5-15 years plus.
• Service Charge – this is an extra charge that the landlord passes onto the tenant. It covers the costs of repairs and maintenance to the property or for providing services like security or cleaning.
• Break Clause – is a provision in the lease which enables the landlord, tenant or both to end the lease early.

Understanding a premises commercial classification

Each commercial property has a classification which stipulates what the land or building can be used for. These classifications are set by the Town and Country Planning Order 1987. There are several classifications, but the ones which mainly relate to businesses are:

Changing a premises classification

If you want to use the property for something other than what it has permission for, in most cases, you’ll have to apply for planning permission to change its class. The planning permission process typically takes around 8 weeks, but in some cases, it can take longer. And at the end of it, there is no guarantee that permission will be granted.

However, planning permission is not always needed, particularly if the new use falls within the same class. For example, permission won’t be needed for changing a coffee shop into a restaurant. Changing a premises class is a complex process, so it’s important you get professional advice.

Additionally, class changes may be restricted to other classes. For example, a property with an A1 classification may only be changed to another A1 or A2 class. To complicate the process even further some uses do not fall into a class. These are referred to as ‘Sui Generis’, which when translated from Latin means ‘of its own kind’. This term covers things like betting shops, amusement arcades and theatres. To change the use of a ‘Sui Generis’ property, you’ll have to apply for planning permission. 

Factors affecting costs

The rent you pay for a commercial office depends on several factors, such as:

• Location
• The condition of the property
• Size
• The restrictions that are stipulated in the lease
• Market conditions

It’s fair to say that rent in some areas will be higher. It may come as a surprise to know that the most expensive area to rent a commercial property is in the East Midlands, where the average weekly rent is £1,345. This is followed by London where weekly rents average £1,345 and then the South-East of England with £936 per week. (Source: Zoopla)

Before you sign the contract on your perfect office space, check to see if there are any ‘hidden costs’. These will be detailed in the lease, but they may not be so obvious, so check it thoroughly or ask a solicitor to through it. Mostly, you’ll need to be concerned with any service charges that are attached to the property.

Another cost that you’ll have to factor in is business rates. This is a taxable charge that is added to non-residential property which is typically paid by tenants to the local authority. You’ll also have to think about service and utility costs, like lighting, heating, telephone and broadband.