Top legal tips for occupiers moving premises

A recent survey from Irwin Mitchell revealed that UK businesses appear to increasingly be on the move, with 76% of respondents (from a survey of more than 500 businesses) saying they have either moved in the last 12 months or are planning moving now.

With this state of flux in mind, Irwin Mitchell’s Tim Rayner and Sarah Swann highlight some of the key considerations for tenants looking to exit a lease of premises and move to another leased property.

Looking first at issues associated with leaving your current premises:

Exit formalities – The first step is to clarify when your current lease will end, whether prior notice needs to be given (and any deadline for doing so). You’ll also need to consider whether you want your existing lease to dovetail with the start date of your new lease, or whether you require some flexibility if there is going to be a lengthy period for fit out works.

If the lease can be terminated early by way of a break option, then early advice should be obtained to understand the complexity of any conditions and assist with compliance with break conditions, such as the service of a notice or giving ‘vacant possession’. A well-advised tenant with a break option ought to consider instructing solicitors at least 6-12 months before the break needs to be exercised.

If the lease is for a fixed term the extent to which there is flexibility on your exit date will be determined by, for instance, whether the lease is protected by the Landlord and Tenant Act 1954 (LTA 1954), whether any notices have been served or legal proceedings issued and finally, how much you might be prepared to pay for that flexibility.

If your lease is not protected by the LTA 1954 and you need longer in your existing premises beyond the contractual term date, an extension will need to be negotiated with your landlord, who may or may not agree.

Dilapidations – A second main issue to consider is dilapidations – i.e. those obligations in the lease which relate to the physical condition of the space.

As a minimum you should ensure you have an accurate record of the condition of the premises before lease expiry. This will be best prepared by a building surveyor.

It’s also worthwhile reviewing your dilapidations obligations. In particular, you will want to understand the costs of complying with your obligations, the time it will take to undertake those works and also whether to carry out those works.

Generally speaking, if you’re liable to return the premises in a non-dilapidated condition then doing the works will reduce both the likelihood and the value of a claim from your landlord after lease expiry. On the other hand, you may wish to factor in what you know about the landlord’s intentions for the premises which could also have a significant impact on the value of for the claim instance, if your landlord intends to demolish the premises at the end of the lease term.

Now turning to the key terms of a new lease:

Sustainability – Green leases are becoming increasingly common but there is currently no model form of clauses meaning that each party’s intentions need to be considered and clearly drafted. We can help to ensure that your own goals are balanced with your landlord’s requirements and that you understand the cost and practical impact to your business. Collaboration at an early stage is vital.

EPCs – Be alive to the fact that energy performance certificate (EPC) requirements are changing. Since 1 April 2023, landlords are not able to sell, lease or continue to lease commercial buildings in the UK that have an EPC rating of F or G. It’s also worth considering the potential disruption and cost of current proposals to tighten EPC requirements to a rating of C or above by 1 April 2027 and B or above by 2030.

You will need to be clear as to who is responsible for the work and cost if your new premises will require works to improve the EPC rating during the term of your lease or any possible renewal. Your ability to use and enjoy the property could be impacted while any works are undertaken, and a landlord’s rights of access should be carefully considered.

Rent Review – Due to rising interest rates, you should review the rent review provisions carefully. The most common types of review are stepped, open market, Retail Price Index (RPI) and Consumer Price Index. RPI will be phased out by 2030. Advice from a reputable surveyor will help to clarify which is likely to be most favourable and highlight any pitfalls.

Service Charge – It is essential to ensure you have clarity around any service charge provisions in the lease and the specific services that your landlord will be seeking to include. You should review previous years’ service charge accounts (if available) and the upcoming budget to understand whether the landlord is looking at any significant upcoming works or to include any unusual expenses. It may also be appropriate to seek a service charge cap and/or exclude specific items from the service charge.

Works and timetable implications – The timetable and implications of any required fitting out works for your new office is particularly important when factoring in landlord’s approvals. This will prevent both delays and eating into any agreed rent-free period. There are also considerations with the drafting around the responsibility for repair and reinstatement of any works.

Break Rights – Carefully consider and negotiate your right to break the lease, particularly in respect of any pre-conditions that must be complied with in order to serve notice and successfully operate the break.

Tim Rayner is a partner and joint head of real estate disputes and Sarah Swann is a senior associate, real estate transactions, at Irwin Mitchell