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The COVID-19 pandemic changed the way people work. The idea of going into office, full time, five days a week has deteriorated since the peak of the pandemic. Work from home or hybrid work setups have become increasingly popular. So, what happens to office work spaces if people are not using it as much?
Your main concern here is whether you might be losing money from the reduced use of your office space.
The good news is that you don’t actually have to keep paying the same amount of rent if you’re not using it, or in other words, if your staff work from home. This is where you can choose to renegotiate your lease to cut your working from home (WFH) costs.
However, this process comes with several options. For example, you and your landlord might agree to end the contract altogether. In this article, we’ll go through the process of how you can renegotiate your lease to accommodate your WFH arrangements.
My Employees Work From Home – What Does This Mean For My Office?
Working from home full time or even just for a few days during the week is a desirable situation for many employees. It allows for flexibility (especially for employees who are parents), saves on travel costs and time, and provides safety during the uncertainty of the pandemic.
As a result of this, office occupancy has been down since the beginning of the pandemic, and most workplaces are sticking to this flexible, employee-friendly routine.
This leaves a dilemma for office sizes that were built to be filled by employees for the entirety of the work week. As a result of this, you may want to downsize your office and pay less rent, which entails breaking the current lease.
Can I Break My Commercial Lease?
In order to break a Commercial Lease to downsize, it is vital that you’re familiar with your Lease Agreement first. The terms of the agreement will determine the options available to you and any costs that may be associated with ending the lease.
It’s always advisable to seek a legal professional’s help at this point, as they can clarify any terms and help you understand your negotiating position, too.
Firstly, agreeing to mutually surrender the lease is an option for landlords and tenants who both agree to end their lease prior to the expiry date. If you plan on downsizing, the landlord may have another tenant who could utilise their space in mind. In this case, a Lease Surrender Agreement would be necessary.
Another option could be to sublease the property for the duration of the lease. Subleasing occurs when you, the original tenant, rent out your space to a third party with your landlord’s permission.
Again, your specific Lease Agreement will determine whether you are allowed to sublease to another party. Either way, you should speak to your landlord and discuss the matter in detail to avoid misunderstandings and conflict later down the track.
| Example Emily is choosing to downsize her commercial property as the majority of her employees now work from home. As a result, Emily finds her business losing money in rent for a space she longer uses. Emily checks her Lease Agreement to see what her options are. Initially she thought that subleasing would be a good idea, but her agreement explicitly provides that she cannot do so. She speaks to her landlord who reveals that she has several people interested in the space. As such, they come to a mutual agreement to end the lease. They chat to a lawyer and draw up a Lease Surrender Agreement to finalise the decision and ensure the details of the process are in writing. |
How To Renegotiate A Commercial Lease
If you don’t want to break your Lease Agreement, you can always request adjustments to your existing arrangement so that they are better aligned with your current circumstances. This is where you’d be able to renegotiate your lease.
To be eligible to renegotiate the Lease Agreement, you need to have an annual turnover rate of less than $50 million as well as an annual 30% decline in turnover. Once eligibility has been established, you can request a rent deduction by doing the following:
- Draft a letter for your landlord and/or their agent requesting their presence for a negotiation (he letter must clarify your eligibility)
- Provide an overview of the outcome you are seeking
- Include any relevant documentation in the letter that demonstrates the truthfulness of the information disclosed
During the negotiation, it’s best to focus on the interest of both parties and come to a resolution that will benefit everyone involved. It can be easy to get caught up in our own needs, however this can often result in no resolution being met.
Make sure to be aware of your obligations to the landlord by checking out the Leasing Principles.
A legal professional can provide objective opinions, assess the situation and help come up with a solution that works for everyone. Upon a successful negotiation, have a new lease drafted by a legal professional that clearly states the new terms of the contract. Once this is done, like any other legal document, make sure you keep a copy for yourself in case you need to refer to it in future.
Next Steps
The new ways of working are likely to impact the office setups of many businesses. As a tenant of a commercial property, there are options available to break your lease to allow for downsizing.
If your business is struggling financially, the option to negotiate your lease is also available. Our expert lawyers at Sprintlaw have aided countless businesses with their commercial lease conundrums and would be glad to help you as well.
If you have any questions regarding Commercial Lease Agreements, reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.
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