There are generally two categories of office space; that of traditional office space and serviced space. As the name implies a serviced office is fully equipped and managed by a facility management company, which then rents individual offices or floors to other companies.
The greatest benefit of this model is that it provides flexibility; most of the costs are included in the monthly fee and in many cases receptionist facilities and such are also provided. Unfortunately such flexibility comes at a cost and rents are normally higher than with leasehold property.
Traditional space involves leasing a property and normally requires a commitment of at least three to five years. As such it's critical that your business is stable enough to be able to commit to traditional office space; not only are you bound for several years (in most cases) but there are considerable additional costs.
Negotiating the terms of your lease can be intimidating for small businesses and it's important to seek advice to ensure you're getting the best terms. Likewise you must be clear about the set up, running and exit costs that can often be hidden in the legal jargon.
Some useful tips include finding out how long the space has been on the market and how much space is available in the neighborhood. Also it's important to take the initiative and state your terms confidently, don't be pressurized into the wrong decision for your business.
In today's competitive market lease agreements can vary dramatically from one landlord to the next - that's why it's important have some professional guidance. To give examples there are incentive packages and stepped rates whilst some landlords might contribute to fit out or even offer a lump sum payment back at the end of the lease period.
Generally speaking from a budgeting perspective companies need to account for the following:
- Moving in/Set-up costs (fixtures, fittings, decorations, furniture)
- Fees (legal, stamp duty, surveyors fees),
- Property costs (rent, business rates, service charge, building insurance, surveyors fees), T/Telecoms installation (telephone, internet, cabling)
- Running costs (gas, water, electricity, telephone line rental, cleaning)
- Moving out costs (dilapidations, legal costs).
Some of the costs such as set up fees are recognized and apprehended by companies but time and again businesses can fall foul of complex service charge issues or business rates which can be around an extra 40% of your lease cost.
Larger developments with volumes of office space tend to be more transparent but companies should always be thorough and get their legal representatives to check the small print.
Areas such as service charges are a minefield as each landlord will have different criteria. Likewise companies need to limit their liability and scrutinize the legal language. For example the inclusion of a phrase such as ‘keep in good repair' versus ‘to put into repair' could be the difference between tens of thousands of pounds of costs in terms of dilapidation costs when exiting a property.
Companies need to think long and hard about all the issues listed above but also use your common sense; scrutinize the property area and don't be afraid to check it several times over. Finally and most importantly don't commit to something that will compromise your financial situation and ultimate business survival.
Glen Levison, Commercial Property Expert at Sanderson Weatherall
