A Guide to the Property Market of England & Wales
Part VII - The Steps to Acquiring Offices
Stage I Defining the Brief
Careful planning is essential to a smooth running and successful move. There are a number of different fundamental decisions to make if you are to keep costs under control and get the best possible use out of your new office premises.
The starting point is to decide whether there are any time or cost constraints and, given those, some basic criteria for the location of the offices. You might like to ask yourself the following questions:
A. Location of Offices
- Is it necessary to locate within the core of the central business district or its immediate fringes?
- What transport facilities are available to ensure ease of access for employees and clients?
- Is the location of competitors significant to the decision?
- What local facilities are essential for employees and business?
It should be noted however that the availability of the right premises may dictate the ultimate location.
B. Size of Accommodation
- How many people will need to be accommodated in the new premises and what space will they require?
- What allowances need to be made for computer installations, a reception, meeting rooms, dining rooms, kitchens and storage?
- To what extent should there be allowance for the growth of the business and over what time scale?
You will need to establish early on in the planning process how much space is required. This is essential if the new office accommodation is to be used efficiently - of prime concern with the increasing costs of occupying space. It is usually prudent to appoint space planners at an early stage to identify precisely your detailed occupational requirements. We are very accustomed to working closely with space planners to jointly provide the optimum solution for the client. Such a report may encompass the following, if appropriate:-
- Space requirements broken down to show departmental, individual and corporate needs.
- Workstation standard showing the items of furniture required by each individual.
- Working/departmental relationships as exist within the organisation and which seems to effect the space planning approach.
- Total space requirements to include an allowance for primary circulation
- Specification necessities, i.e. air-conditioning, raised floor etc.
C. Style of Building
- What style of building is most appropriate to the business and corporate image - should it be modern, traditional, prestigious, purely functional or a combination of the above?
D. The Facilities
- What facilities are essential to the running of the business - air-conditioning, raised floors, 24 hour access, car parking, U.P.S., standby generator?
- Would either a Shell and Core or Developer's Finish be more appropriate for the fit-out requirements? This is a question that the appointed fit-out consultants will advise on.
- Are there special requirements for air conditioning, lighting or power and can the buildings being considered, cope with these special requirements?
E. Tenure
- Is either freehold or leasehold property best suited for the business and what are the advantages/disadvantages of these two options?
- How much flexibility will be needed within the terms of the lease?
- What financial constraints are there in terms of available capital and ongoing occupancy/revenue costs?
- What are the occupancy costs per employee?
The vast majority of office occupiers prefer to lease a building rather than to acquire the freehold interest, both for the reason of cost and because leasing potentially gives them greater flexibility particularly as it is often difficult to plan with a great degree of accuracy future space requirements much beyond a five year time horizon.
The purchase of a freehold however may provide the greatest degree of flexibility. Subject to funding and normal investment criteria based on the risk/return ratio, a company may wish to invest in a larger building than suitable for its immediate requirements and devise a strategy for leasing the surplus accommodation, to take account of future expansion. This should be the most secure method of devising such flexibility, by the purchase of a long lease or freehold.
F. Lease Term (or length of lease)
- When should anticipated changes in the business, and thus space requirements, occur in order to establish precisely the lease term required?
This is a particularly important aspect in terms of the future ability to dispose of the premises and indeed the company’s continuing liability in respect of the lease in the event that you assign the interest before the expiration of the term.
G. Timing
Step I - Initial Planning
- When is occupation of the new premises required?
A successful move depends largely on allowing enough time. Hexell Wylie will draw on their wide experience to help you create a timetable which has realistic targets and goals.
It will be obvious that not all these questions can be answered easily. In areas, such as space requirement and the type of tenure best suited to business, professional advice is required at an early stage in the planning process of any move.
Step II - Search and Evaluation
With the timetable and overall brief agreed, the search for premises can begin. It is important to ensure that all the available options are being covered so that the final shortlist of properties gives sufficient choice within the criteria set.
As a very active firm of Real Estate Consultants, Hexell Wylie is well placed to help. Our contacts with other commercial agents, developers, investors and local authorities are very wide and we augment them with a comprehensive database which covers properties in a number of categories:
- Those available to let through Hexell Wylie and via other agents.
- Those about to come on the market
- Those under construction or with planning consent.
We will search the market widely to match requirements with suitable opportunities. Each property is analysed and a report prepared for the client, including a shortlist of the best prospects. Together, we examine the shortlisted properties in detail, often with the help of the space planning consultants. It is obviously important at the outset to establish that the identified offices will suit the requirements in terms of space. A preliminary space planning exercise should be carried out prior to the next step, together with obtaining some indication as to the capital cost involved in fitting out.
If requested by the client we will undertake a detailed financial appraisal of each of the shortlisted properties to establish and compare the potential financial liabilities over the respective terms of the leases. This is provided in a cash flow format.
Step III - Negotiation of Heads of Terms
With a shortlist established, the next stage is to prepare a negotiating strategy. The client will need to consider and seek the answers to a number of questions which in the case of leasehold properties will include the rent, rent free and premium. We match our specialist knowledge with comparisons to other comparable transactions taking place in the market.
In a market where there is a substantial over supply of available office accommodation developers/landlords have been known to take assignments of tenant’s existing leasehold interests in order to induce letting activity within their own schemes/buildings. As alternatives to the assignment route, other landlords have been prepared to cover, for a specific or indefinite period, a tenant's outgoings on their existing premises or pay a capital sum to cover such liabilities for a period of years. Although far from common place, if the margins prove attractive to a landlord, then this may also form part of the negotiations.
Hexell Wylie pride themselves and are known to have a fearsome reputation, for negotiating the most beneficial terms on their clients’ behalf. We negotiate every aspect of the acquisition of a freehold or leasehold interest, taking each point to the ultimate position, confident that we can achieve the best possible results for our clients.
Once these matters have been resolved or clarified, Hexell Wylie will arrange for a Heads of Terms or offer letter to be drafted on the first choice of property which will, subject to approval, be sent on the client’s behalf, to the potential landlord.
If, after a period of negotiation, the terms are acceptable in principle, we will arrange for the client, if appropriate, to have undertaken a detailed evaluation of the structure of the building and the services within it. In all instances we will arrange for a measurement of the Net Internal Area to ensure that the client only pays for the usable accommodation provided.
Step VI - Legal Negotiation and Space Planning
Both the legal negotiations and the space planning by your specialist consultants will run concurrently to ensure that full benefit is derived from any rent-free period negotiated.
A. Negotiations of the Lease
We will assist the client in briefing their solicitors on what has been agreed, so that work can begin immediately in reviewing the draft legal documentation while the detailed space planning is taking place, so helping to save time. We will ensure that the legal documents properly reflect the Heads of Terms agreed and the prevailing market conditions. The solicitors, assisted by us where appropriate, will negotiate the terms of the proposed lease document and recommend an acceptable legal agreement.
B. Space Planning and Alterations
Whilst the legal negotiations are taking place, the client will need to plan the use of the space in the building in detail. A good space plan will provide direct benefits in at least two ways. Firstly, it increases productivity by improving efficiency and raising morale of employees. Secondly, it will cut down on wasted floor space, often resulting in substantial savings in occupancy costs.
The need for alternations, or fitting out, will vary greatly depending on the type of accommodation being acquired and the use to which to is being put. It may simply be a matter of installing partitioning and providing cabling for an open office area or, it may involve a shell and core fit out, including the installation of air-conditioning, suspended ceilings, raised flooring, partitioning and decoration. This is a specialist job and it is advisable to take on a consultant to work with the client. The Hexell Wylie acquisition team will help and work alongside other consultants. The planning falls into two phases:-
1. Preliminary Planning, Clients briefings, space planning, preliminary budget estimates and sketched design. This would also form part of Step II.
2. Creative Detailed designs, colour schemes and selection of fixtures, fittings and furniture.
During this stage it is essential to decide upon the number of telecommunication lines required, whether they be British Telecom, or other providers, and place the order with the relevant company. Delay in doing so will hinder occupation of the offices.
Step V Formalising the Agreement
On completion of the previous four steps, a binding commitment between landlord and tenant in the form of a lease or Agreement for Lease is exchanged. At this point you will be in a position to progress further the planning process and building works.
It is usual that completion of legal documentation follows within a matter of weeks. This is not always the case when an Agreement for Lease is exchanged. The tenant will then hold the lease and the landlord the counterpart.
Step VI Fitting Out
We see this period as the final phase before occupation. It is divided into two distinct sections:-
A. Detailed Planning
Revised budgeting, documentation of all work, including partitioning layout, furnishings, colour schemes, decoration, the seeking of Landlord’s consent and any statutory consents. In order to maximise the benefit of any rent-free negotiated, the client may choose to embark on the detailed planning process prior to formalising the lease under Stage V but, if the transaction subsequently fails to proceed, there is a risk of paying abortive fees to your professional team.
B. Works
Organisation of tenders, implementation of works, contracts administration, supervision and payment approvals.
Step VII - Occupation
On completion of these works, the client is now able to take occupation of their offices.
Part I - Property Tenure
Part II - Property Leases
Part III - The Legal Principles in the Acquisition of Office Property
Part IV - The Legal Principles in the Disposal of Office Property
Part V - Lease Provisions
Part VI - Property and Associated Costs
Part VII - The Steps to Acquiring Offices
Part VIII - Conclusion
Glossary of Terms