The future of the office and its role in the commercial world is a popular debate. Whatever your view, it is difficult to deny that the role of the office is changing. 

Dominic Whelan

Dominic Whelan

The debate is generally centred on what added value an office place can bring to a business and how thoughtful space can support collaboration between colleagues and foster a positive work culture.

But what about the leases themselves? How are they likely to change?

The merging of the ‘traditional’ and ‘flexi’ market is very apparent in the marketplace. Some obvious consequential changes are (even) shorter lease terms and more frequent break clauses. Fewer businesses see the need to secure long-term commitments, as they recognise that there is greater value in being able to adjust their demand for space as their business evolves.

Tenants rarely have the in-house skill set (or time) to deal with managing the fit-out process. We are seeing many more landlords offering a furnished turnkey/plug and play solution, which complements the desire for design-led space that is fit for the modern world. This is at the heart of the movement, which is seeing an increasing number of landlords recognising the need to change their traditional business models and move towards the principle of seeing ‘space as a service’.

This approach impacts upon the repairing obligations within the lease where you will now often see reduced obligations as against traditional leases and, in particular, less open-ended terminal dilapidation claims. Instead, expect to see either fixed payments or inclusive rents that build in what was previously a dilapidation liability. This reflects the trend of offering certainty to tenants as to what their occupation costs will be.

The environmental credentials of a building are becoming a significant factor for occupiers. It is not only the larger organisations with their global environmental targets (and reputations) to manage but also smaller occupiers who want to be able to show to their staff and customers that they are doing their bit.

For some time now, we have seen within leases vague references to the landlord and tenant working together to improve environmental performance. The expectation is that this will start to change as tenants demand ‘greener’ leases and want more than just a good EPC rating. This change can be seen by the approach of larger landlords who look to use environmental performance as a key tool in the promotion of new space. We are likely to see more specific obligations in term of energy efficiency, waste management and water efficiency as tenants’ demands become more specific.

Green issues are not just about new (or newly refurbished) buildings. The minimum EPC ratings for commercial buildings look set to become far more onerous in the not too distant future, so expect to see landlords wanting to reserve the rights to upgrade the buildings (and tenants being careful to avoid footing the bill via the service charge).

Dominic Whelan is a partner in the property team at law firm Goodman Derrick