UK: Room For Manoeuvre - Managing Your Property Costs

Last Updated: 6 May 2008
Article by Giles Murphy

In uncertain times it pays to make sure you're getting the most from your property, says Nigel Grice of Drivers Jonas.

Whether your business operates from an office, a shop or a shed, it makes sense to get the best value from your premises. This is particularly true in times of economic uncertainty, when you may have worries about the stability of your income moving forward. Here are some of the things you should consider.

A Question Of Space

The golden rule that applies to all businesses is that the less property you occupy, the less you will be paying for it. So ask yourself the question 'do we really need all this space?' It may make sense to scale down, but often the property overhead - unlike people - is a fixed cost that is difficult to change in the short term. A bit like a super tanker: you can twirl the wheel as much as you like, but it takes time to change direction.

Your flexibility depends on the terms under which you occupy your property. Is it a freehold? Or a leasehold at a market rent with that most user-unfriendly device: the upwards-only rent review. In other words, is it an asset or a liability?


If your business is run from a property it owns, you've resisted the urge to sell and leaseback in the good times, and you're not mortgaged to the hilt: congratulate yourself - you have flexibility. You could sell it or part of it, lease part of it, or grant licences. All of which will bring in some extra income while allowing you to run a downsized business.

You may even find that your property is worth more for another use - residential, for example. Provided you can get planning approval and there is demand for your kind of property you could take this route. Whatever option you choose, you are in control.


If your business space is held on a lease, things become more complex. Average commercial leases last for about seven years these days, and every one is unique, so much depends on what the document actually says.

A good place to start looking for savings is outgoings. Apart from rent, most leases oblige the occupier to pay rates and service charges. Look at the service charge clause and get hold of the last few years' worth of service charge records. Are they reasonable? Could they be challenged? And look at the rates: have they been appealed? Are there grounds for a reduction, such as neighbouring building works?

Steps To Downsizing

If prudence dictates that you should reduce the amount of space you occupy, or reduce your outgoings, here are some suggested next steps.

Read the lease. And not that unsigned draft floating around in the bottom drawer - get hold of the signed engrossment.

Concentrate on understanding the restrictions in the lease, particularly those which deal with assignment and sub-letting. Can you sub-let part of the property or create licences? Can you let it at market rent even if this is less than the passing rent (the rent you originally agreed to pay)? Is the user clause restrictive? Are there tenant-only breaks coming up?

Get a local firm of commercial agents in: show them the space and give them a copy of the lease. Ask for a report on the following.

  • Sub-letting and assignment prospects - is there a market? What will you get?

  • What would you have to spend on the space to make it marketable?

  • Are there any wrinkles in the lease that you will need to sort out?

  • What will their fees be for advising you?

Your options are likely to include one or more of the following: assign the whole, sub-let the whole, sub-let part, create short term licences, or renegotiate the terms of the lease with the landlord.

Some companies tied in to a difficult lease have chosen to liquidate the company as an escape route. This is not recommended. It can damage the reputation of a business and, in any event, may not work if there is a parent company guarantee.

Liaise With Your Landlord

One option that is frequently overlooked is simply talking to your landlord. Things you could discuss might include:

  • reducing the rent for a period of time, perhaps agreeing to an earlier rent review

  • paying monthly rather than quarterly, as most leases stipulate, to help you with your cash flow

  • widening the user clause if it is restrictive

  • widening the alienation provisions if the restrictions on assignment and subletting are restrictive

  • trading up-coming tenant breaks for a lower rent

  • extending the lease, again trading a longer term for a lower rent or a rent holiday.

Ultimately, if you are anticipating cash flow problems, there's no substitute for dialogue. After all, your landlord really does not want your business to go under and should be open to options.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Giles Murphy
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