Premises, premises
Andrew Croft takes a step-by-step approach to finding affordable office space, negotiating the best deals and how to avoid property nightmares.
When the St Giles Trust – a charity that works with young people at the margins of society – needed to find a new building to house its expanding staff the task proved to be more torturous than anticipated. Their existing headquarters in Camberwell, South London, provided enough space for around 65 people, but they needed a second building for another 30 desks and couldn’t squeeze in any more. After a lengthy search they found the ideal premises in a nearby business park and managed to negotiate a good deal, with the help of an expert advisor. But the process was time-consuming and frustrating.
Other charities have horror stories to relate. In one case the supposed ‘landlords’ turned out not to be the landlords at all, despite having power of attorney. In another the charity was asked by the landlord to provide the names of individual trustees to guarantee the lease.
These examples are not untypical and illustrate the need for specialist help, but many are reluctant to buy what may be perceived as expensive advice. Will Daniel, a property consultant and chartered surveyor, advises clients not to attempt to handle property negotiations themselves unless they have in-house expertise. Commercial and legal advice will incur costs but will invariably result in a better outcome and save money in the end. Nevertheless, having a broad understanding of the ins and outs of commercial property renting can help to avoid costly mistakes.
One common pitfall is not reading the lease and plans carefully enough. The experience of the 1990 Trust – a race equality campaigning and policy charity – illustrates how this can lead an organisation into difficulties. The charity was looking to move to cheaper premises but formally notified the landlord (through a ‘notice to break’) a week after the specified deadline. As a result, the landlords insisted they had to remain, which meant the charity was left with rent they couldn’t afford and a lease they couldn’t get out of.
To compound matters, when they eventually did leave four years later the landlord was reluctant to return their deposit of £14,000 to cover dilapidations and claimed the charity had erected a partition. They hadn’t, but the original plan didn’t show the partition – an error that could have been avoided had they checked the plans more carefully. Eventually, following professional advice, they reached a compromise and were able to leave two months early, which saved the charity a substantial amount of money. But it was a hard lesson.
Length of lease
These examples illustrate the need to seek proper professional advice from legal and property experts. Nevertheless it is still useful to have some understanding of property legislation. An important consideration is to plan ahead and estimate what your future needs are likely to be, particularly what length of lease is needed.
Most leases are between three and 25 years, but this may be too inflexible for many not-for-profit organisations who cannot guarantee their income. A commitment to a longer lease will normally attract a lower rent or command a better incentive package, but this can be a false economy if you need to terminate the lease early – something that some charities may have to do if they run into financial difficulties, or need to scale up or scale down.
Service changes, maintenance and refurbishments
Checking the small print within the lease is essential so that you are clear on what is included in the rent and service charge. Are meeting rooms available and are they charged for or included in the rental? (In most cases they are not.) What about set-up charges for IT, broadband and phones? A lease that initially looks good value may come with hidden ‘extras’ that bump up the cost.
An organisation may be landed with a large bill for refurbishment on leaving a property. It is important to check the condition of the building carefully when moving in. This involves keeping a record of the fixtures and fittings – carpets, ceilings and partitioning, for instance – and the general state of decoration. Where appropriate, you should agree a ‘schedule of condition’ in relation to the building and limit repairing and reinstatement liabilities. A common scenario is when a charity wants to move out but finds out that it has significant dilapidations liabilities on existing premises (which could be as high as £20,000 or more) which need to be factored into its relocation budget. It’s important that tenants are clear about who has responsibility for the upkeep of the building and that they look carefully at the state of the property before moving in. This includes the condition of the carpets, for instance, which a landlord may require the outgoing tenant to replace if they have become worn or stained. Even if the building is in near perfect condition it will need maintaining, and it’s usually the tenant’s responsibility to do that.
The following is typical wording on a contract:‘During the lease term, tenant shall make, at tenant’s expense, all necessary repairs to the leased premises. Repairs shall include such items as routine repairs of floors, walls, ceilings, and other parts of the leased premises damaged or worn through normal occupancy, except for manor mechanical systems or the roof, subject to the obligations of the parties otherwise set forth in this lease.’
Key areas of any contract that need to be scrutinised carefully are:
- the length of lease;
- the rent (check what is included or excluded);
- break clauses (what happens if a tenant wants to leave before the end of the lease?);
- service charges (covering things such as cleaning and heating);
- dilapidations (an amount paid to the landlord at the end of the lease); and
- responsibility for maintenance and repairs to the building and external areas.
Having an understanding of leases, liabilities and property legal jargon is useful, but the best way to avoid property nightmares is to take professional advice. An outline of the main legal points covering landlord and tenant principles is included in figure 1, with a summary of key points when considering relocation set out in figure 2. For more detailed legal information see the article,‘End of term’ by Rosalind Cullis (Caritas issue 12, November 2008, page 24)
Author: Andrew Croft
Andrew Croft is chief executive of CAN, an organisation that provides business support and investment for third sector organisations, social entrepreneurs and social enterprises.
He has twenty years experience in retail business management and is currently completing an MBA at Imperial College, University of London.
There are no comments on this article. Be the first to comment.