How do you get out of a long-term lease if you decide to move to a WFH agency model?
Now we're all working from home pretty seamlessly, I'm thinking of moving to a hybrid office/WFH model. What's the best way to get out of a long-term lease with the landlord? Or isn't there one?
I think you and every other agency are re-considering their office requirements at the moment. And realising that they just don’t need as much space as they’ve got and that savings can be therefore made on the costs related to that.
But, getting out of a lease, in my experience, isn’t going to be easy. The fact is if office rents haven’t already fallen like a stone, then they are definitely going to. I’m not sure why a landlord would allow you to surrender your lease when the next tenant after you is going to be paying a lot less rent, assuming the landlord can even find a next tenant in this market!
But I guess it is always worth the conversation, as you never know what the landlord might be planning. There’s always the chance that some landlords might be thinking about redeveloping office space into residential units, so you might get lucky.
I think the main point, though, is that this is a good time to be thoroughly checking your lease agreement. In addition to trying to find things that could work in your favour, there are often clauses within that can come back to bite you in the bum, in particular around notice periods. In some cases, there will be deadlines to give notice that you don’t want to extend your lease which if you miss can mean you’re tied in to a new lease for another lengthy period. Often these deadlines are a year before your current lease ends and if you’re even one day late, then you’re committed to it. So, check the small print.
Also, you need to look at the provision in your lease for dilapidations. Basically, this means that you will effectively have to put the office back into the same condition as when you moved in, however many years ago that was. This will mean that you’ll have to make good any internal works that you have done and return the space to mint condition. In reality, what it means is that you don’t actually do the work yourself, but you come to an agreement with the landlord for the amount of money it would cost and pay that at the end of your lease. Although in your accounts you’ve probably been providing for this provision over the years you’ve been in your office, it still has a big impact in terms of cash flow as you’ve got to actually pay out that money. That can be a bit of a sting in the tail and even more so now, when cash is king.
Written by Graham Goodkind who is a Dutch Uncle – a new type of non-exec business adviser – to several agencies in the marketing services sector, in addition to being founder and chairman of Frank.
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