Insights | 15 costs to consider when moving to a leased office

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15 costs to consider when moving to a leased office

Moving office is an expensive, and timely, process where some costs are not always understood or appreciated. In this article we highlight 15 costs you need to be aware of when moving to a leased office.

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We have broken them down into one-off costs and ongoing costs. Where we have felt we have been able to, we have provided high-level guidance on what those expected costs might be – but please note that costs for professional services will vary depending on the nature of the project.

One-off costs

With any leased office move, there are always one-off payments needed to relocate to new premises, most often due prior to your move.

1. Having an Agent

An agent will help you find and secure your new office. Their primary role is to act as your advisor, and advocate, to ensure the best possible financial, and legal terms are achieved with your new property.

They’ll run a deeper analysis on your shortlisted properties and cover off all the necessary due diligence. A good agent will be able to source all available properties that meet your requirements, provide deep property and market knowledge, and know where achievable dealing terms are throughout the different market cycles. Your agent will assume a project management role, assisting all other associated professional parties to ensure the relocation proceeds as smoothly as possible, and on time, whilst fundamentally ensuring the financial and legal terms of your property contract are as favourable as possible.

Tip: An industry standard fee is 10%of the annual rent, but performance-linked fee structures are also commonplace.

2. Solicitors

Once your agent has agreed the principal terms of the deal with the Landlord, solicitors will be instructed to begin drafting the lease, which is essentially your rule book to occupy the office. Your solicitor will try to ensure clauses within your leases are not too onerous upon you.

They will also conduct property-related searches to ensure you know as much about the property and it's surrounding influences as possible, such as any known or potential risks, i.e. flooding, planning, traffic schemes, etc.

Tip: Solicitors fees will vary, however a good estimation is 3 - 5% of the annual rent, with the cost of property searches being additional, at around £800 - £1,000.

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3. Surveys

Not all properties will need surveys done, but in some instances you will be well advised to do so. For example, you may need to review the air-conditioning if you feel it is faulty. Likewise, you may choose to inspect the structural integrity of the building, which is especially advised if you are taking the whole building. You may also require a schedule of condition if you are taking fitted space. These are all professional, third-party reports you may need to commission.

Surveys and the associated due diligence process should not be overlooked - remember the Latin phrase that is used in English property law; Caveat Emptor, "let the buyer beware" - meaning the individual buys at their own risk, so appropriate investigation into what you are acquiring is important.

Tip: The cost of surveys can range from £950 - £3,000.

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4. Fit-out

If the office needs a fit-out, then this is a cost that will need to be budgeted for. The level of spend is up to you, of course, but you will need to engage with a design and build contractor who will work with you to design your perfect space aligned with an appropriate build cost.

Tip: Here is a gold, silver, bronze fit-out estimate (multiply the below rates by the floor area of the space):

£140 - £250 per sq. ft – Gold
£85 - £140 per sq. ft – Silver
£65 - £85 per sq. ft – Bronze

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5. Build Project Management

Whilst your agent will serve as project manager for the process up to the completion of the lease, for larger office acquisitions where a more complex build project is required you will benefit from engaging an independent build project manager to oversee the management of: the design process, tendering process, cost analysis, contractual adherence and programme of works.

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6. Deposit

Deposit levels will vary as they are often based from an assessment of your company’s financial strength; the stronger your accounts, the lower the deposit. The deposit, hopefully in its entirety, should be returned to you when you vacate the property. The common test used by the property industry to determine whether a deposit will be requested by a Landlord is known as "The Profits Test", which requires your last 3 years of net profits to exceed 3 times the value of the annual rent for the last 3 consecutive years. If you pass this test then you may be in a position to argue for a low, or potentially zero, deposit. If you do not pass this test, then you will likely be required to lodge a deposit for the office.

Tip: The deposit sum will vary from 3 – 12 months of rent and VAT value.

7. Stamp Duty

A contribution towards stamp duty land tax will be payable by the Tenant upon completion of a commercial lease transaction in the event that the value of the rent (plus any additional premium payment, if applicable) is equal to or greater than £150,000 across the term of the lease. Be sure to ask your agent, or solicitor, or use the government website - https://www.gov.uk/stamp-duty-land-tax/nonresidential-and-mixed-rates

Tip: a rough calculation on stamp duty is 3.5 – 5% of the annual rent.

8. Internet, Telecoms and IT Set Up

In a traditional leased office you are responsible for installing and paying for the internet and phone lines. Installing appropriate connectivity can be one of the most challenging aspects of a relocation project, with long lead times, site surveys, installations and various documents to be passed between parties. You could be subject to some one-off installation charges and additional legal costs associated with the Landlord allowing the hardware into the building. These legal contracts are known as wayleaves and will be completed during the legal process by your solicitor.

Tip: you may be subject to extra legal fees if you wish your solicitor to proof the wayleave agreement. Typically, this will be an extra £1,000 -£2,500.

9. Removals

If you are a small firm moving from a serviced office, then you might not incur removal costs; it may be as simple as picking up your laptops. Alternatively, you may be a larger organisation completing a relocation that incorporates the moving of extensive furniture and IT systems, thereby requiring specialist removal companies.

10. Dilapidations

At the end of your existing lease, you will likely be required to reinstate the office into its original condition - this will be stipulated in your lease. This is known as dilapidations or reinstatement works and may require a not-insignificant level of expenditure. You will be well placed to engage a building surveyor who will assess and negotiate to ensure that the claim that your Landlord makes upon you for dilapidations costs is fair and reasonable. For more information, read our blog on dilapidations: https://www.spacepoint.co.uk/insights/the-onerous-topic-of-dilapidations

Tip: An industry guide is £20 - £30 per sq. ft.(multiply these rates by the floor area of the space)

Ongoing Costs

In a traditional lease, unlike a serviced or managed office, you need to set up and run the office yourself. This will involve ongoing costs such as:

11. Occupational Costs (Rent, Business Rates, Service Charges & Estate Charges)

Rent is paid to the Landlord, or more often to their managing agent, and is generally paid quarterly in advance the quarter dates. For smaller spaces some Landlords may allow rent to be paid monthly in advance.

Business rates are the tax payable directly to the local council, not the Landlord. It is your company's contribution to help fund the borough’s local operations, much the same as your council tax at your home. You are responsible for setting up payments with the local authority, and payments can be made annually, monthly or quarterly.

Service charges, if you are in a multi-tenanted building, are paid to the Landlord, and most often within the same invoice as the rent. It covers your contribution towards the cost of running and maintaining the common areas, amenities, facilities and structural parts of the building. The cost is split proportionally across all Tenants in the building. Landlords are not allowed to profit from the service charge. If you are the sole occupier of the building then a service charge would not be applicable. Instead, you would be solely responsible for the running and maintenance of all parts of the building.

Estate charges are only encountered for those properties where there are amenities that exclusively serve the benefit of the building occupiers, but are beyond the structural boundaries of the building, and thus cannot fall within the service charge accounts. These charges might include costs associated with maintaining grounds (planting/landscaping), car parking areas, etc.

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12. Cleaning

You will need to set up and manage your own cleaning contract. Incoming Tenants wish to find out which cleaners operate in the building already, or you may already have an existing relationship with a trusted contractor. If you are without options your agent may be able to put you in touch with reputable cleaning companies.

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13. Utilities

Utilities are generally metered separately, with meter readings recorded upon the completion of the lease. When you move into a new office you will need to speak to the managing agent who should be able to advise you of utility providers that service the building. On some occasions utilities are billed via the service charge and proportionally charged back to you.

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14. Internet

Depending on your needs, such as number of users, file sizes being transferred, transfer speeds, multi-line resilience, etc, the monthly charges for internet connectivity can be anything from less than £100 per month, to a few £'000's per month.

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15. Insurance

In a multi-tenanted building, the Landlord will purchase the buildings insurance, and then recover this cost from the Tenants, either via the service charges or via a separate insurance charge request. Tenants will be responsible for their contents insurance, and all other insurances associated with operating their business. If you are the sole occupier of the building, then it will be likely that you will have to source and pay for buildings insurance.

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Hopefully this guide has provided a beneficial introduction to the breadth of costs that needed to be accounted for when relocating to, and occupying, a leased office. By contrast, serviced and managed offices will see nearly all of these costs brought together within one monthly "rent" charge, thereby making cashflow management substantially easier.

Please speak to a member of the Spacepoint team for further advice relating to leased offices, serviced offices or managed offices.

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Christopher Bill