Often HR professionals and those in management roles are
lumbered with dealing with property matters for the business. Below
is the first of three articles to give you a better understanding
of the issues surrounding surplus premises.
Many companies are reviewing their staff requirements in the
light of the Brexit referendum result and long term trends such as
increasing automation in the workplace. Sometimes a reduction in
employee numbers goes hand in hand with a reduction in the
requirement for premises – and often hard-pressed HR teams
find they are dealing with lease disposals as well as redundancy
The first thing to be aware of is that, much like an employment
contract, some clauses are implied by law into the landlord and
tenant relationship. It's important to read the lease and be
aware of its terms, but the lease itself is not the whole story. In
particular, the Landlord and Tenant Act 1954 gives occupiers of
business premises in England and Wales security of tenure unless
certain procedures are followed. If your lease is protected by the
Landlord and Tenant Act you might find that the tenant company is
liable to pay rent for longer than the dates specified in the
lease, so it's important to check whether this Act applies.
There are a number of possible ways of leaving premises, or
reducing your occupation of them.
the lease comes to an end
the lease contains a
"break" right allowing either landlord or tenant to end
the lease at a certain time, which you make use of
you transfer your lease to another
company, meaning they step into your shoes as tenant
you underlet your premises, or part
of them, to another company
Some of these options require you (as tenant) to get
landlord's consent first.
Before diving into these, don't forget the right to share
occupation of premises with a group company. If there's a chain
of ownership of more than 50% of the shares, the lease will often
allow group companies into the same space without a lease between
the two companies. Cost sharing becomes an internal accounting
exercise. More formal ways of dealing with surplus space will be
considered later in the series.
The end of leases
There can be unexpected consequences of bringing leases to an
Most English leases oblige the tenant to hand their premises
back to the landlord in good repair and condition. This can mean
giving them back in a better state than they were at the start of
the lease. The lease will often specify redecoration in the last
year of the term, commonly allowing the landlord to select the
colours used, requiring new carpets and for any alterations, such
as partitioning, to be removed. These works are usually called
Sometimes the lease puts limits on the repairing obligations.
The lease might say that the repair should be no worse than the
state recorded in a schedule of condition, usually a collection of
photos taken at the start of the lease term. This is an important
concession for a tenant, and the schedule of condition should be
stored carefully with the other title deeds.
The works to restore the premises can be expensive and should be
provided for in the tenant company's accounts. Often (but not
invariably) the cost is negotiated between the parties, and the
tenant pays the landlord money to do the relevant works after the
tenant has moved out. However there are important restrictions on
what the landlord can charge for, both as a result of case law and
contained in the Landlord and Tenant Act 1927.
If the landlord is going to demolish the building when the lease
ends, he can't require the tenant to pay for the cost of
redecorating it. Equally if the landlord plans to improve the
building over and above the standard of repair required by the
tenant, the landlord can't charge for tenant works which would
be superseded by the landlord's plans. For example, should an
external cornice be returned clean and painted, or fully restored
to Victorian glory? Where there are two ways of carrying out a
certain repair, the landlord can only charge for the cheaper
method. It's a complex area so getting specialist advice is
Best practice suggests that the discussions about the condition
of the premises should start six months before the end of the
lease. Beware of waiting for the landlord to initiate the
conversation – one cost the landlord can claim for is rent
for the period of time it will take for the works to be done after
the lease has ended.
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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