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How can tenants cope with excess space post-Covid?

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Paul McNeive

Paul McNeive

Paul McNeive

My contacts in the US tell me that there is a significant amount of office space coming on the "grey market", where tenants decide to relinquish some or all of their accommodation, following a reappraisal of their business needs, in light of the pandemic. I don't expect a huge amount of that for offices here, but many companies will be reconsidering how much space they may need in the 'new normal'. So, what are a tenants options, where they don't need all their space?

If you're certain you won't need a particular office, shop or industrial unit in the foreseeable future, do consult an estate agent for advice. In today's market, it's unlikely that any modern lease will command a premium, or "key money", but you should make sure. "Key money" can arise for shops in good positions, and perhaps with "goodwill attached", or for restaurants, or for premises where the rent you are paying is below the market rent. Your unit may be particularly valuable to one of your neighbours. Also, your agent should know if a developer is assembling a site around you. Long shots, but worth checking.

If your lease has no value, your next step is probably to offer to surrender it back to the landlord, to whom it may be of value. If the landlord has no interest, the permanent solution is to assign your leasehold interest to another party. This process requires the consent of the landlord, which he cannot "unreasonably withhold". However, problems frequently arise with this, where your proposed replacement tenant may not be perceived to be as financially strong as you are, which then reduces the value of the landlords' investment.

Despite providing the standard references for the proposed assignee, ie three years' solid accounts, a bank reference and a previous landlords reference, if the landlord wants to block the deal, he will refuse consent. Then, the tenant's option is to sue the landlord for being "unreasonable". The practical problem is that the legal process will take many months and very few potential tenants will wait for the outcome of that, when there are other simpler options available.

It is much more difficult for a landlord to refuse consent to a sub-letting. In this case, you remain as the tenant, fulfilling all the tenants' obligations, but you are also a landlord to your tenant. It's not ideal, but it's usually the quickest way to reduce overheads. Sub-letting part of your premises is another option. That is probably prohibited under your lease but many landlords will be amenable to this, particularly if the proposed new tenant is strong and might be a likely occupier for more of the building in the future.

Where you are sub-letting, the landlords' main concerns will be that you do not grant a lease with a longer term than your own, or that the sub-tenants do not acquire rights after five years in possession, thus allowing them to claim a new long-term lease directly from him. If you are sub-dividing a premises, you need to consider planning permission and building control issues. You probably won't need planning permission, but problems arise when partitions interfere with escape routes under the building's fire safety certificate.

There are options for reducing your overheads and always seek expert advice. Many landlords will be flexible, and never proceed without their consent, as that creates new problems.

Irish Independent