Your business’s lease is close to expiring – what are your options? Read up on the things you have to consider as you approach your lease expiry, at what time, and how you can navigate some of the options you will have in front of you.
1. When to start looking for a new office
In Brisbane’s current leasing climate vacancy across the CBD is upward of 15%. Ultimately, this means there is over 350,000sqm of office space sitting vacant within a 1km radius of Queen Street. For tenants looking to find a more appropriate space for their next office, reviewing all the suitable options is a process that, if done extensively, would take a full week merely to walk every individual space.
To allow yourself enough time to review all options and negotiate terms and agree on a lease, our recommendation is to allocate a minimum of six (6) months with a preference for twelve (12). With consideration given to the fact that you will have to continue running your business, the more time you allow for property matters, the more educated your final decision will be, and the better suited the office and its financial factors will be for your team for the long term.
2. Extending your current lease – option periods
If, as a business, you are certain your existing office premises is ideal and does not need to be relocated, it is not simply a matter of letting the lease run out and rolling on to a month to month term or a renewed lease at a ‘market price’*. Similar to if you are reviewing the wider market for relocation options, there is a process that can be run to ensure you secure the most attractive terms to remain in your current space.
Securing the best terms for a lease renewal is about creating an environment of competition where your current landlord is forced to acknowledge that you could very easily find alternative premises at a, potentially, more attractive rental rate or better quality space. Their opportunity cost is that if they don’t engage, they will lose an existing, rent-paying occupier. This process can typically be started from about twelve (12) months from lease expiry, although each landlord will operate differently depending on their risk exposure to vacancy.
If your current lease has an Option you will typically have a notice period requirement of between three (3) to twelve (12) months. Option clauses* vary, so the ultimate goal is to ensure that a Market Review* is included, or you will have to look around the market and judge price/rates yourselves.
3. Relocating within your current building
It is important to give consideration to all possible alternatives within your current office building as you approach the end of your lease. It is rare that a business is the exact same size and operates the same way at the end of the lease as it did at the beginning, so it may be worthwhile considering more appropriately sized options elsewhere in the building, or, perhaps, your business may benefit from redesigning the office layout to maximise its efficiency.
All options can come into the discussion, it is predominantly a matter of understanding the time needs (~3-6 months), the cost implications and which party is expected to bear the upfront capital of any fit outs alterations.
4. Make Good
All leases will be drafted with a Make Good clause that outlines the tenant’s obligations at the end of the lease in regards to making amendments to, or stripping out the fit out in situ.
Depending on the condition of the fit out when the lease began, a landlord will typically have established a make good along the lines of;
- A full strip out of all fittings with a requirement for the space to be returned to a warm shell (carpet & ceiling tiles); or,
- A cash contribution was given to the landlord for them to manage “make good” works; or,
- An expectation that the fit out is left in a clean and tidy state as it was when the lease began, subject to fair wear and tear.
While the Make Good provisions shouldn’t dictate whether you enter the lease in the first place, they are due fair consideration as they can be an expensive item as you vacate a tenancy (~$200/sqm).
- *Market Price: Price calculated in comparison to other equivalent options in the market.
- *Option Clauses: A clause that appears in the leasing contract to specify the occupiers right to extend their lease at their discretion.
- *Market Review: Review of the current rent in comparison to other equivalent spaces within the current market.