COLUMN: Lynn Gate - Exiting agreement is just important as entering one

MAKING the decision to exit an office agreement can require just as much of a strategy as entering into one.

MAKING the decision to exit an office agreement can require just as much of a strategy as entering into one.

There can be many reasons why businesses need to end their agreement: the property is no longer a suitable size or location, the rent has become too high, or you want to take advantage of a more favourable option elsewhere.

You should have had an understanding of the options to end your agreement before you even entered into it. However, if you are at the stage where you want to move into a different office space and are unsure how to go about it then I do have some tips for approaching your landlord or agent effectively.

It’s always my recommendation for small business owners to go for a short-term licence agreement if possible. One of the beauties of a licence is that you should be able to give as little as 28 days’ notice to leave.

The downside of having a licence agreement is that you have no rights to renewing it. Therefore if you wanted to stay on in your office, and your landlord has other ideas, then you will be left out in the cold.

This is why it’s always good to get to know your landlord, keep an open dialogue with them so you are both kept abreast of future plans. Always go in and have a meeting with them at least one month prior to the termination of your licence to scope out the possible next steps.

If you want more space, then your current landlords should still be your first port of call. Find out if they have anywhere else bigger they would offer similar terms for. Staying with the same landlord, but upsizing your office can help keep the move simple – and the less disruption to your day-to-day business activity, the better.

When it comes to lease agreements, this can be a little trickier as they are often for much longer periods of time and this might mean you are breaking the contract by leaving early. This is a legal agreement and means your landlord has the right to take you to court if necessary.

Hopefully you will have agreed some break clauses in your lease before signing it, as this gives you the starting point for your exit strategy. Most break clauses have a period of notice to adhere to prior to the break clause being executed, and some now include a term of ‘vacant possession’. If your break clause states that the tenant must provide vacant possession by the time of completion, then you must have made the premises vacant of any people or objects so that the landlord can re-let the space straight away, in order for it to be a valid termination. Failure to do so means you could still be liable to continue to pay rent. So leave nothing and no one behind. Something which is often overlooked at sign up stage that often comes back to bite you are penalties. A landlord has the right to charge penalties for any change to an agreement, therefore if you want to exit your licence or lease agreement early, you could be liable to pay the remaining rent up until the end date, or even the fees the landlord will incur to re-let the space.

Every entrepreneur knows forward planning in business is key, and this is the same with the business of commercial property agreements. If anything, make sure you learn from your exit. Let it be clear what it is you need from your next agreement and then make sure you get it.

:: Lynn Gate, managing director of Gateshead-based The Office Company

 

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