By Eugene O’Sullivan, Co-Founder and COO, Morgan Pryce
Direct answer: Negotiate the whole occupational package rather than the rent alone. Rent-free periods, break rights, repairs, service charge, the right to assign or sublet, reinstatement and rent review provisions can all make a material difference to what an office lease costs, how flexible it is and how much risk the tenant carries.
What should you negotiate beyond the rent?
When a business finds a space it likes, the temptation is to get the keys and sort out the paperwork afterwards. That is exactly where an occupier gives value away, because the agreed rent is one line in a much wider commercial commitment.
The best negotiations are prepared early and built on a clear requirement, credible alternatives and a shared understanding of which points matter most to the business. Winning a concession that looks impressive but leaves the client’s real risk untouched helps nobody.
1. Rent and the effective deal
Headline rent is the starting point. Ask what the full cost looks like once incentives, business rates, service charge, insurance, utilities, fit-out and professional fees are included, because a lower rent can easily be outweighed by a short incentive period or higher building costs.
The comparison that counts is the effective cost across the period the business is likely to occupy, rather than the rent in the first month.
2. Rent-free periods and capital contributions
A rent-free period recognises the cost and disruption of committing to a building, and depending on the transaction, an occupier may also be able to secure a contribution towards fit-out or other works. Landlords price these incentives into the deal, so they should be tested against the full term, the rent and the landlord’s view of your covenant strength instead of being accepted as a standard formula.
3. Break rights
A break right can be extremely valuable, provided it works in practice. The wording, date, notice period and conditions all need close attention, because a break that is technically available but easy to frustrate offers very little real flexibility.
For a business with uncertain growth or a changing operating model, this is often one of the most important points in the whole lease.
4. Repair and dilapidations
Repair obligations are regularly underestimated. A tenant needs to understand the condition it is accepting, what it must maintain and what it may have to hand back at the end, and a thorough schedule of condition alongside practical legal advice can stop a future liability from becoming an unwelcome surprise.
It is unglamorous work, and it is exactly where experienced occupier representation pays for itself.
5. Service charge and building costs
Service charge can change the economics of a building entirely. Ask for the right information, understand the historic costs, and find out about any planned major works or management issues. A premium building should be able to show what its premium pays for, beyond what appears in the brochure.
6. Assignment, subletting and sharing occupation
Headcount, group structures and business plans all shift over the life of a lease, and the lease should not make every sensible future decision harder than it needs to be. Negotiate the ability to assign, sublet or share occupation with the organisation’s likely future in mind.
7. Reinstatement and alterations
Fit-out is what makes an office work, but it can leave you with a liability when you go. Establish what you can alter, which approvals you need and what must be removed at the end, and do not leave reinstatement to the final weeks of your occupation.
The Morgan Pryce view
Good negotiation has very little to do with theatre. Most of it is the disciplined work of understanding the client’s commercial position, creating competition between options and securing terms that still hold up once the deal is signed. That is what independent occupier representation is for.
FAQ
At a minimum: the effective rent, incentives, break flexibility, repair obligations, service charge, alterations, reinstatement and your future ability to assign, sublet or share occupation.
Often, yes. How strong the request is depends on the property, the level of competition, the lease length and the tenant’s covenant. Raise it early, before other terms are fixed.
Because returning space to the required condition at the end of a lease can be expensive. Understand the obligation before you sign and manage it throughout your occupation.
Speak to Morgan Pryce
If a lease event, relocation or workspace decision is coming up, Morgan Pryce provides independent, occupier-side advice across search, negotiation and delivery.
