Changing property requirements – thinking of downsizing as a result of Covid-19?

With remote working being tested to full capacity during the pandemic, tenants may be considering their property requirements for the long term.  In some cases, businesses may decide that remote working is a success and should be implemented permanently to some degree and, as a result, their current space is, at least in part, now surplus to requirements. 

What options may be available to facilitate downsizing?

Expiry of lease term

If a lease is coming to an end due to the expiry of the contractual term, the tenant should consider what steps it may need to take in order to swiftly and economically exit the property.  As the tenant may no longer be in occupation, it will need to consider how to deal with reinstatement obligations under the lease and any supplemental licences for alterations in a timely manner.  If a lease benefits from security of tenure under the Landlord and Tenant Act 1954, unless the tenant has ceased to occupy the property for business purposes, it will need to bring the statutory tenancy to an end in the usual way.

Negotiation

If the tenant has the benefit of a break clause, it may want to consider exercising it or negotiating revised lease terms with its landlord.  Negotiations could include removing an existing break and replacing it with an additional break clause later in the term to provide the tenant with flexibility, agreeing not to exercise the break clause in exchange for a rent free period or agreeing not to exercise the break clause in exchange for a surrender of part of the demise for a reduced rent for the remainder of the term.  If there is no break clause to use as leverage in negotiations, tenants may still be well positioned to approach and work collaboratively with landlords to accommodate changing property requirements.

Break clauses

If the tenant decides to exercise the break clause it is worth reminding that strict compliance with conditions attached to a break clause is required.  If rent must be paid up to the break date, this can include the entire rent payment for the rent payment period in which the break date falls – not simply payment up to and including the break date.  Vacant possession does not only mean physically removing tenant chattels from the premises but also leaving the premises without having granted rights of occupation to another party.  Service of the break notice must comply with the notice clause in the lease.  In the current pandemic, the tenant would also be wise to seek advice on any additional steps which may be advisable to ensure valid and effective service on the landlord.

If you need advice on your changing property requirements, please contact real estate specialists Carol Phillips or Kate New.