Meeting the challenges for charities of renting property
Even pre-pandemic, entering into leasehold agreements with commercial landlords was daunting for charities. Without doubt, from financial concerns through to alignment of values, renting commercial property as a charity can be a challenging process. However, there is plenty that can be done to ensure the procedure works for all parties and you get the best deal, which will help you feel comfortable with any agreement you enter.
COVID RELATED CHALLENGES. Covid has been one of the biggest health and economic challenges of our generation. It is impacting people and businesses in every sector all over the world – real estate is no exception. It is affecting both landlords and tenants in the commercial property market, and the respective parties are having to be creative to ensure they keep their occupiers and workspaces.
Many traditional landlords have offered their tenants options like rent deferrals and holiday periods. But for many charities, this simply doesn’t align with their values - not operating within their means may make them uncomfortable and deferring payments would be too risky given the lack of assured cash flow.
Furthermore, charities should have good dialogue with their landlords. This helps both parties explain their respective situations and understand how the pandemic has affected them, ultimately aiding in reaching a resolution that both parties agree with.
In fact, there is a direct correlation of the relationship between tenants and landlords and the continuation of tenancy and payments. Landlords who have remained distant from their tenants have consequently lost occupiers, and their rental income - whereas landlords who have ensured good communication with their tenants have generally seen better rent collections.
Health and safety
It’s also worth mentioning health and safety measures. Many charities provide front-line services, so ensuring workspace is safe and secure is an absolute must. There also needs to be appropriate provision for hybrid working, such as video calling equipment.
Some charities also rely heavily on postal deliveries and need to have confidence that landlords will continue to accept and receive post. It’s for reasons like this that it is essential you choose the best landlord, as well as the best workspace, to suit your needs.
To ensure you’re entering a leasehold agreement with a landlord who will be receptive to productive dialogue and building a valuable relationship, there are a few aspects you can look out for.
RENT STRUCTURES AND NEGOTIATING CONTRACTS. Five-year leases and rent agreements might be acceptable for some commercial businesses as they tend to have more predictable cashflow streams than charities. But charities need much more flexibility to both shrink and expand their tenancy agreement. This has been particularly true during the pandemic, as the impact of Covid has seen most charities experience either an increase or decrease in funds and/or requirement of services.
Additionally, charities are often less experienced when entering into a leasehold agreement than most businesses, and rarely have the legal budget for a lawyer to review a contract. This means that the lesser known clauses, such as dilapidations and break clauses, remain unbeknown to charities until issues with the tenancy begin to arise, which is often toward the end of a lease.
If you can afford professional advice, then seek it. Clauses like dilapidations can really catch a charity out, and for smaller charities can result in administration.
Understanding intricate details
It’s important for charities to ensure they understand all the intricate details of any leasehold agreement that is presented to them. From here, they can begin to negotiate as much flexibility as possible. You can push back on break clauses or negotiate a rolling break clause that could be on a three- or six-month basis depending on the size of the charity – this is often more suitable for a charity whose annual income is unpredictable.
Don’t be afraid to negotiate either. Many of us are too quick to accept rental terms, but most aspects of a lease can be negotiated. A lot of these intricacies might not have much impact on the landlord but will provide a degree of flexibility for a charity that could prove hugely beneficial – you could negotiate a rent-free period for example.
If you’re already in a leasehold agreement and want to leave or have the contract changed, you should talk to your landlord as soon as possible about your situation and your plans. You might find you have leverage and flexibility and be able to negotiate much better terms during the lease rather than at the end of it.
Equally, if you’ve already decided that you want to leave, telling your landlord sooner rather than later may result in a negotiation for the remainder of the lease.
Landlords want certainty
Whether beginning a new lease, continuing a current one, or terminating, talking to your landlord at the earliest stage possible will set you off on the right foot. You might be surprised by how flexible they can be. After all, landlords want certainty, and for certainty they need tenants. Without tenants, business rates and liabilities will increase – it costs to have an empty building.
ORGANISING CO-WORKING ARRANGEMENTS. Co-working arrangements (independent occupiers working with shared access facilities on a flexible basis) are becoming more common. One of the core benefits of co-working is the ability for occupiers to pool their resources to ensure any agreement operates for all parties within their budgetary constraints. Also, they tend to be more transparent in terms of costs, but it’s still important to review all the aspects of the agreement, as the devil is in the detail.
Most co-working spaces are paid monthly, which may suit charities better than quarterly payments, but they also have shorter notice periods, which provides a lower security of tenure. Furthermore, within a co-working arrangement, you might not always be defined as a tenant, but as a licensee or part of a type of membership. This could mean that you’re asked to relocate to a different desk or area of the building, which is disruptive for your charity.
Shorter notice periods can have advantages too, as they make it much easier to scale up or down if you have services that grow or shrink, which is quite common for charities.
However, not all co-working operators work in the same way. Some have a single fee, others have hidden costs – some contracts will appear affordable, but costs can quickly be hiked up, and you may have to pay for meeting room spaces or various property services. Therefore, you need to check the small print to ensure transparency and appropriate continuity.
Finally, you need to make sure that you have a business model that means you’re open to sharing your environment. If you handle confidential information, it’s unlikely that a co-working arrangement is suitable for you.
Charities, like most organisations, need physical workspaces to carry out their work in an effective and appropriate manner.
Understanding the needs and requirements that a charity may have as a tenant compared to a business is something not all landlords are familiar with, and some may be unable to adjust accordingly.
But where there are flexible leases some charities have been able to move out during lockdowns and later return to their offices when they had greater certainty as to their financial capabilities.
So, to ensure you move into the most ideal workspace with an understanding landlord, charities need to know what questions to ask, what red flags to look for, and how to negotiate to achieve the best possible leasehold agreement. I hope the suggestions I’ve made will help charities understand the challenges of renting a commercial property, and the steps they can take to make the process less daunting.