The Costs of Renting Offices

Rent

An obvious, but important one! For conventional offices, it is usually stated on marketing details as a £ per sq. ft. rate. 


For serviced offices, you will usually pay a rent per desk per month rate.

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Service Charges

If you are taking a conventional lease in a multi-let office building, you will usually pay a service charge. This will often cover the maintenance, cleaning and repair of the common and external areas of the building you occupy.

 

The service charges will also contribute to any onsite amenities you use, such as a concierge, lift maintenance, gym facilities etc. Typically, the greater the level of amenities and quality of the building the higher the service charge.
For conventionally leased offices, the service charge is usually quoted on marketing material as a £ per sq. ft. rate.


For serviced offices, the rent, business rates and service charges are usually quoted as a single monthly rate per desk

Business Rates

Business rates are a tax on business properties paid by those who occupy them. Business rates, along with service charge and rent, is one of the key annual costs to establish when considering an office.

 

Business rates vary considerably across different office markets in London and across the country. Business rates are assessed on the rateable value, which is in effect the estimated market rent for the property at a selected ‘antecedent’ rental date.


In central London,  business rates have increased sharply in many areas so it is important to seek the right advice when you are considering taking new space or are concerned about the rates at your current premises.

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Fit-Out Costs

For those new to conventionally leased offices, fit out costs are often under budgeted for or not considered until well into the negotiating process. Tenants who have only ever enjoyed serviced or managed offices might be shocked to find that new or refurbished conventionally leased accommodation is usually offered in shell and core or CAT A specification.

 Shell and core condition is effectively a bare space. The building will look finished externally, but internally there will be little more than the bare concrete slab floors, glazing and capped off services. CAT A is a basic landlord fit out, which will usually include the installation of the building’s mechanical and electrical services (e.g. air conditioning, toilets, raised floors, common reception areas etc). CAT A offers a blank canvass for tenants to configure their CAT B fit out works.


CAT B fit out works offer a tenant the opportunity to create, establish or reinforce your company identity and brand. Ideally a fit-out company will advise you on tailor made solutions that offer you the most practical and efficient works spaces, that add value to your organisation and increase the wellbeing and productivity of your staff.


Your fit out might include the following:


- Partitioning
- Meeting rooms and private offices
- Additional air conditioning units
- Reception and break out areas
- Floor finishes and coverings
- Lighting
- Installation of cabling, audio and visual equipment or specialist mechanical equipment
- Kitchens or kitchenettes
- Painting, decorating, branding
- Furniture procurement


As you might expect the cost of your fit out will be dependent on an infinite number of factors, however within the fit-out industry a broad rule of thumb for fit out costs is usually the equivalent of a year’s rent. So, if your rent is £150,000 per annum, your fit out could be as much if you are taking space that has just been fitted out to a CAT A standard.


We advise both landlord and tenants on their fit-out option, advising them of potential options and guiding them on the tendering processes to ensure they get the right advice and most cost-effective solution.


It is also important to consult with capital allowances specialists at the fit-out stage to determine whether tax relief is available on this capital expenditure. We will assist our clients with this at an early stage of the acquisition process.

Buildings Insurance

 

 

If you lease an entire building you will often be responsible for insuring the whole property. If you are taking part of a property, you will usually be responsible for paying a fair and proportional part of the insurance cost. The payment of insurance is often kept separate from the service charge and your insurance costs should be clarified at the start of negotiations.

 

 

 

The difference between IRI, effective FRI and FRI Leases

Cost Implications

FRI is an abbreviation of Full Repairing and Insuring. In effect, if a tenant takes occupation of the whole building they will be responsible for the full upkeep, maintenance and insurance for the property.


Effective FRI is common for multi-let properties. The tenant is not directly responsible for the repair and insurance of the whole property, but the Landlord will recover the cost for this via a service charge from all of the tenants. The service charge will usually cover the maintenance of common areas, external and structural parts and amenities such as a concierge, gym or communal terraces or garden areas.


IRI is an abbreviation for Internal Repairing and Insuring. The tenant is responsible for internal maintenance and decorations, potentially the windows and doors too.  The Landlord Internal repairing leases generally tend only to cover the interior fittings or finishes of the property and possibly shop fronts. As a matter of common practice internal repairing leases often also include the windows, doors and all fixtures and fittings found inside the properties. The landlord retains responsibility for structural and external repairs without reimbursement from the tenants.

Solicitor and Professional Fees

A firm of solicitors will usually need to be employed to draw up a lease in line with the agreed heads of terms. Solicitors specialising in planning or development may also need to be employed when necessary.


Other professional fees may include building surveying fees for a schedule of condition and/ or building survey. Consultancy services from accountants may also be required. M & E consultants might be employed to check the air conditioning, heating systems and any other mechanical or electrical services. Often your fit-out contractor will organise this for you.


In addition, where substantial works are to be undertaken with the landlord’s agreement, architect, planning consultant and engineering costs might have to be accounted for.

Agency and Consultancy Fees

When we are instructed as your office acquisition agent, fees will be payable for our acquisition and consultancy services. All fees will be outlined and agreed prior to our instruction so no nasty surprises!

Dilapidations and Reinstatement

Dilapidations and reinstatement liabilities need to be considered both when approaching a lease expiry and agreeing terms for a new lease. Dilapidations refers to a breach of lease covenants relating to the condition and repair of a property during the term of the tenancy or at lease expiry.  As a lease expiry or break date approaches it is important to seek professional advice in order to determine what your liabilities are and to negotiate the final settlement or works to be carried out. Our Lease Consultancy and Building Surveying teams’ carryout this type of work routinely.


When taking a new conventionally leased office premises, it is very important to ensure your dilapidations liabilities are reasonable from the outset and to be aware of what these liabilities may cost you at lease expiry so they can be budgeted for. Our specialist teams of agents, lease consultants and building surveyors work closely together in this area to ensure you are protected from any onerous future liabilities.