UK office landlords continue to face fresh challenges. With occupiers weighing up their long-term response to hybrid working, as well as recent unprecedented political instability and economic headwinds on the horizon, vacancy rates are up.
Vacancies in London, in particular, now sit at 8.6% – up 2.9 percentage points on the pre-pandemic level, according to Knight Frank.
However, good buildings with good landlords will always let. There are still deals to be done, but the response to occupier caution needs to be reasonableness and pace – closing deals quickly while giving confidence to tenants that they are getting a fair lease.
Contracts and speed are not necessarily traditional bedfellows. The industry has a reputation for protracted negotiations driven by a traditional ‘buyer beware’ approach and – rightly – both sides need to secure the best deal possible while avoiding future risk. Getting the balance right comes down to clarity on priorities from all parties and transparency in the negotiations.
The starting point is a solid heads-of-terms (HoTs) agreement. Establishing the boundaries of the lease and key negotiation points can save time, angst and cost. The more that can be established earlier on, the more likely both sides will achieve a deal with which they are happy and which is on time and on budget.
Increasingly, owners and potential occupiers are involving solicitors at HoTs stage to anticipate and resolve possible points of contention. Once the deal goes ‘live’, landlords now want to begin negotiations with a ‘reasonable’ first draft, incorporating the market-standard protections a well-advised tenant will want. The days of onerous first drafts that have to be ripped apart by a tenant’s solicitor are thankfully becoming a thing of the past.
The much-heralded death of the office post-pandemic has not come to pass, and it won’t; but occupiers certainly have a stronger hand and are cautious about the future. Landlord contracts need to reflect this reality to get deals done quickly and with confidence.
Melina Whitehair is a senior associate at law firm Winckworth Sherwood