How can you effectively downsize business premises?

• Posted onMarch 26, 2021

Due to the coronavirus pandemic, remote working has become the new normal. There has been a shift in the view towards commercial property and business premises. Businesses have had to consider their property requirements for the long term.  Some businesses may decide that remote working is a success and they may look towards downsizing their premises to provide smaller, more flexible workspaces.

An independent survey showed 73% of UK business leaders predict office downsizing as a result of the coronavirus pandemic. Research also found that 57% of businesses will still rely on a physical workspace in order to network and collaborate with colleagues and clients. The future of the requirements for larger business premises is uncertain and it is important that businesses are prepared for changes that they may face and understand their post-coronavirus needs.

Options for Commercial tenants looking to downsize their premises

If a business has decided to downsize their premises in order to meet their post-coronavirus needs, they will need to consider the terms of their current lease and understand if the lease is coming to an end or not. There are a number of options for a business to consider when downsizing their business premises.

Assignment of a Commercial Lease

Assignment is an option for a business considering downsizing their premises. A tenant can assign a lease to a new tenant before the term of the lease has ended. The lease will detail whether the tenant is allowed to assign the lease and the requirements for assignment.

Is Sub-letting a good option for a business?

Sub-letting provides an option for businesses who need to downsize their premises to fit their post-coronavirus needs and is an alternative to assignment. A tenant can sublet whole or part of the premises. Sub-letting may be suitable in a situation where the tenant has surplus space which is not required for the purpose of its business. It is important for the tenant to consider the terms of the lease to understand whether the lease allows sub-letting and if consent is required from the landlord.

Negotiating a Surrender

Another option is to negotiate a surrender. This is a consensual agreement and both parties must agree to the surrender. There may be cost implications such as a premium requested from the landlord.  In the current climate landlords may request a higher premium which takes into account a number of factors such as future lost income.

Break Clauses in Commercial Leases

If there is a break clause in the lease, it is important to review this and determine whether it should be used. A tenant may wish to exit a lease early after reviewing their needs for office space and the rent they are paying. In these circumstances, if there is a break clause in a lease it will be important to understand the conditions and requirements in the clause such as rent due before the break date and notice to break a lease. These conditions must be complied with in order for the break to be successful.

Alterations to Business Premises

A business may alter their current premises as an alternative to downsizing. Physical alterations may also be required to comply with ongoing social distancing regulations. It is important for tenants to consider the lease terms before making any alterations and seek the landlords consent if necessary.

With uncertainty on the horizon as we slowly ease out of lockdown, it is vital for businesses to consider their options and to be one step ahead to ensure that they are prepared for their ever changing needs.

WSP Solicitors have a dedicated Commercial Property team who operate across Gloucestershire from our offices in Stroud and Gloucester. For more information, please visit our Commercial Property web pages. You can contact our Commercial specialists here, or using the form on this page. Alternatively, you can call us on 01453 847200.