With demand for premium office space reportedly rising in areas across the country, as more businesses encourage their staff to return to the office. It’s important that businesses get the basics right before they enter into a lease.
Naomi Butler, Legal Director in Thrings’ Commercial Property team, takes a look at the current situation and suggests how businesses can be savvier when it comes to heads of terms.
The market
Recent research from real estate management firm JLL points to a more positive outlook for the UK office market. With regional cities such as Bristol showing renewed momentum as availability tightens while demand (particularly for modern, energy-efficient buildings) is getting stronger.
For occupiers, these trends point to an improving market. One that is shaped by demand and therefore becoming more competitive, with businesses prioritising more sustainable and better-located offices.
In practical terms, this means:
- Good space is harder to secure, particularly in central locations.
- Landlords may be less willing to offer generous incentives.
- Costs such as rent, fit-out and service charges are likely to remain under pressure.
For business owners, the key takeaway is that timing and preparation matter. Entering negotiations well-informed, with a clear strategy and sound legal advice in the early stages can make a significant difference to both cost and long-term flexibility.
What to look out for when agreeing heads of terms
Before signing a lease, it is worth taking a step back and focusing on the detail at the heads of terms stage. This is where the commercial deal is set, and where early legal input can add real value.
A few areas to keep front of mind:
- Lease length and flexibility - Think carefully about how long you want to commit. In a changing market, flexibility is key. Options such as break clauses can provide a useful exit, but only if the conditions attached are workable in practice.
- Rent and incentives - Headline rent is only part of the picture. Tenants should also consider the use of rent-free periods, capital contributions or stepped rents. In a tightening market, these incentives may be less generous, so clarity on their availability is important from the outset whilst the heads of terms are being negotiated.
- Repair and service charge obligations - Full repairing leases can carry significant cost. Understanding the condition of the property – and whether a schedule of condition is appropriate – can help avoid unexpected liabilities. Likewise, review how service charges are structured and capped.
- Fit-out and alterations - If the space needs adapting, check what is permitted and whether landlord consent is required. Timescales and approvals can affect your ability to occupy on schedule and within budget.
- Sustainability and compliance - Energy performance and environmental standards are becoming increasingly important. Minimum Energy Efficiency Standards and wider ESG considerations may impact both occupation and future costs.
- Assignment and subletting - If in the future your business needs change and you require more or less space, the ability to assign or sublet can be crucial. Restrictions in the lease should be understood early to avoid limiting your options later down the line.
- Timing and costs - Finally, factor in the overall timeline – from agreeing terms to completion – and the associated costs, including legal fees, SDLT and fit-out. Delays can be costly if not planned for.
Thrings’ Commercial Property team has extensive experience advising on all areas of real estate. Whether it is supporting acquisitions or disposals, managing property portfolios, or entering into commercial leases. Our team takes a pragmatic, collaborative approach, working as an extension of your business to provide clear guidance on complex legal and financial matters. Get in contact to find out more.