The Evolution of Office Leases

Recently I mentioned to some of our associates that when I started my career people could smoke in the office and I had to get permission from our head of department to leave the office at 4.30pm one day (it was grudgingly given). They were somewhat horrified. More than two decades later, no one would argue that offices and the expectations of office users have moved on dramatically. For my occupier clients, flexible working space and green credentials have joined location at the top of the shopping list for their head office relocations.

This shift has changed what office leases look like. Those who have invested in the ESG credentials of their office buildings will have two (sometimes competing) objectives: to preserve the value of those credentials and to get leases in place quickly so the assets start producing income.

A much more collaborative approach to lease negotiations has therefore evolved as a matter of good business sense. The position of most landlords has changed from “we don’t negotiate our leases” to “let’s make sure our standard lease is fair”. Many have adopted the excellent Model Commercial Lease as a starting point, which has brought a modicum of standardisation to the industry. With my occupier hat on I can attest to the speed at which leases are agreed when the MCL is deployed, and I am looking forward to seeing the results of the MCL committee’s current working project to add an agreement for lease to their suite.

The new MCL was launched in February this year, shortly before the Better Buildings Partnership launched an updated version of its green lease toolkit.  Like the MCL, the toolkit is the result of industry collaboration – in this case to produce a collection of green lease provisions and guidance aimed at improving the sustainability of commercial buildings. The toolkit is deliberately designed to dovetail with the MCL and the MCL committee is working to see the extent to which it can accommodate the new iteration in the MCL.

I often see clauses from the previous iteration of the BBP green lease toolkit incorporated in office leases (the MCL includes a schedule that incorporates the light green options) and the standardisation of such provisions is helpful. In some respects, the new toolkit reflects the natural progression of this, but some aspects are much more progressive and would certainly be off-market in 2024. However, the same would have been said of the original toolkit when it launched in 2013 and signposted the industry’s green ambitions at the time. As a new signpost, the updated toolkit will undoubtedly help formulate the evolution of this aspect of office leases. 

Between the MCL and the BBP green lease toolkit, the modern office lease has evolved quite significantly from offices leases of 20 years ago. Prior to that, the most significant changes had been driven by legislative necessity – for example the Landlord and Tenant (Covenants) Act 1995, the Land Registration Act 2002 and the Regulatory Reform (Business Tenancies) (England and Wales) Order 2003. But there has been relatively little legislative tinkering since then, so the evolution has been driven by commercial impetus and a shift toward a more collaborative approach to landlord and tenant relationships. As an industry we should be proud of that and hope the evolution of office leases continues in the same spirit.

Laura Oliver is a partner at Clyde & Co. She will be speaking at The Future of the Workplace | EG Events on Wednesday 12 June in London. Book your place today to explore the dynamic landscape of the office, analysing its evolving role in the economy and the opportunities it presents.

Published by Estates Gazette.